Liquidity plans
Transparent financial and liquidity planning is at the heart of every finance department.
Example of a combined financial and liquidity plan with integration of a cash flow statement.
A financial plan should primarily be drawn up for strategic long-term planning (over one year) and operational short-term planning, whereby short-term planning is the familiar direct liquidity plan. It is a basic requirement for managing the liquidity risk! The financial plan is defined as an entrepreneurial forecast of the expected income and expenditure for a period, supplemented by the development of cash and credit balances if necessary.
Optimal use
It is often very time-consuming to fill periodic liquidity and financial plans with data. It is therefore advisable to collect this data on as broad a basis as possible with a high level of detail. Whereby detail does not mean the second digit after the decimal point, but the ability to predict not only the liquidity and financial status, but also other fundamentally important information. For example, currency information. If the forecast cash flows are already recorded in their original currency, this information is of almost inestimable value for the treasury department to set cash flow hedges, if necessary, unless the consolidation has already shown that natural hedging is taking place.
Example: The subsidiary in Brazil reports to its parent company in Germany in BRL. The cash flows from foreign currencies are usually pre-consolidated in BRL. However, the rent, for example, is in USD and there are still transactions in Chilean Peso CLP. Pre-consolidation in BRL makes it impossible to use a liquidity plan as an exposure report at the same time.
Reasons for a financial and liquidity plan using this method:
- Securing short and long-term solvency
- Minimizing the (opportunity) costs of cash management
- Minimization of financing costs
- Basic prerequisite for effective hedging of exchange rate and interest rate risks (see also article here)
- Maximization of investment income
- Ensuring financial independence.
Please also read the separate sections on reporting in general and . Get in touch with us and we will be happy to show you what is possible for your company!