A well thought-out Cash flow planning is the foundation of a successful company. However, as the insolvency of the Signa Group impressively shows, serious mistakes in this area can have serious consequences. In the following, we highlight the most important aspects of a professional Cash flow planning and illustrate how the Signa Group failed to implement it.
What is Cash flow planning and why is it important?
Cash flow planning is the process of ensuring a company's solvency. This involves forecasting future cash inflows and outflows in order to identify bottlenecks in good time and take countermeasures. A solid Cash flow planning should:
- Be detailed and reliable Realistic assumptions on income and expenditure form the basis.
- Audit-proof be audit-proof: Documentation and traceability are essential.
- Be strategic A clear distinction must be made between short-term and long-term planning.
- Flexibility Ensure flexibility: Scenario analyses help to anticipate various developments.
Signa Group's mistake: a textbook example of failed Cash flow planning
The insolvency of the Signa Group revealed glaring weaknesses in liquidity management with serious potential consequences for the parties involved. The following errors have so far been identified by the insolvency administrator in the insolvency proceedings:
1. "Beer mat calculations" instead of professional planning
Instead of a reliable liquidity overview, the Signa Group relied on so-called "beer mat calculations". See here. These "calculations", available in rudimentary Excel formats, contained:
- Arbitrary and unjustified transfers of value from companies outside the Group.
- Uncertain assumptions about the availability of free Cash position within subsidiaries.
- Lack of transparency and traceability.
- Missing scenarios (what-if) and real worst-case considerations
Illustration "Beer mat calculation" © News
The lack of care and structure at Cash flow planning did not meet the requirements of a large company in any way.
2. inadmissible use of funds
Although Signa Prime Selection AG itself had considerable liquidity problems, according to the insolvency administrator, in 2023 alone around 252 million euros in the form of subordinated, i.e. unsecured, upstream loans were were transferred to Signa Prime Holding GmbH. These payments were made:
- Despite the known financial difficulties of the receiving company.
- Without an economic basiswhich puts those responsible in a bad light.
- Apparently preferential payments to related advisors, which further substantiates the assumption of de facto management by the advisor, supported by statements from investors.
3. early warning signals ignored
The Signa Group's financial problems were not sudden: according to reports, the members of the Management Board must have been aware of financing difficulties as early as 2019. Despite this, no countermeasures were taken. According to the insolvency administrator, an insolvency application should have been filed by the end of the first quarter of 2022 at the latest. The failure to do so ultimately led to the insolvency administrator's alleged delay in filing for insolvency.
4. lack of supervision
Not only the Management Board, but also the Supervisory Board bears responsibility in such situations. According to allegations by the insolvency administrator, the entire Supervisory Board of Signa Prime Selection AG failed to properly monitor the Management Board and to work towards filing for insolvency in good time.
Possible consequences of a failed Cash flow planning for the acting bodies
Errors in Cash flow planning can have a serious personal impact not only on the company, but also on those responsible on the Management Board and Supervisory Board. The consequences include
1. liability claims
Members of the Management Board and Supervisory Board are personally liable for damages resulting from inadequate planning or a delay in filing for insolvency. In the case of the Signa Group, the liability of those responsible was increased by the insolvency administrator to around one billion euros billion euros. This liability is joint and several, which means that all members are jointly liable for the total debt.
2. consequences under criminal law
Late filing for insolvency can result in criminal investigations. Those responsible can be prosecuted for delaying insolvency or breach of trust, which can result in severe fines or even imprisonment.
3. loss of reputation
The personal reputation of those responsible can be massively damaged by insolvency. This makes future professional activities more difficult, especially in positions of responsibility.
4. reclaiming remuneration
In the event of insolvency, fees and bonuses already paid to members of the Management Board and Supervisory Board can be reclaimed. This has also happened at the Signa Group, where some of the fees have already been successfully claimed.
Learning from mistakes: how to achieve a professional Cash flow planning
To avoid such scenarios, companies should pay attention to the following points:
1. establish binding standards
A professional Cash flow planning requires binding standards for data preparation and documentation. Audit-proof methods and software solutions such as COMMITLY should be used.
2. integrate scenario analyses
"Worst-case" scenarios should be worked out in detail - not just on a "beer mat". Scenario analyses help to make well-founded decisions.
3. define clear responsibilities
The roles of the Management Board and Supervisory Board in liquidity monitoring must be clearly defined. Regular reports and independent audits create transparency.
4. set up early warning systems
A robust early warning system helps to identify liquidity bottlenecks in good time. Automated tools can help to quantify risks.
5. obtain external expertise
The expertise of external consultants should be utilized to provide a solid foundation for planning and control, especially in the case of complex corporate structures.
Conclusion: Do not underestimate the importance of Cash flow planning
The insolvency of the Signa Group shows the consequences that inadequate Cash flow planning can have. Professional liquidity management is not only essential for the stability of a company, it is also a legal obligation.
Companies of all sizes should ensure that their Cash flow planning is resilient, transparent and sustainable. After all, mistakes like those made by the Signa Group are avoidable - provided the issue is approached with the necessary seriousness and professionalism.
