Liquidity planning: these 10 common mistakes should be avoided

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The liquidity plan is one of the most important entrepreneurial management tools and serves as an indicator to identify possible financial bottlenecks at an early stage. Always remember: 8 out of 10 company bankruptcies are a direct result of a lack of liquidity, 2 out of 3 companies are profitable at the time of bankruptcy, but fail to realize these profits in the bank account in time.

Tresio is the digital solution for liquidity management in companies. More than 300 Swiss SMEs are already using Tresio to optimize their operational planning and our Excel template has been downloaded over 1,000 times.

In this article, we show the 10 most common mistakes in liquidity planning and how they can be avoided.

These are the most common liquidity planning mistakes we see in SMEs:

  1. Confusion with the income statement – cash flow and profit are not the same! On the one hand, there can be significant time differences between the posting of an item affecting profit and its realization on the account (see next point), but on the other hand there are also events affecting liquidity that do not appear in the income statement at all.

    Pro tip: when planning for liquidity, think from the perspective of your bank account. When will this be filled? When will it empty again?
  2. The billing terms are forgotten. While income is recognized as income as soon as an invoice is sent, it can take a long time for the money to actually reach the account. This deviation must be taken into account when planning liquidity.

    Pro tip: insist on prepayment, especially for new customers. Cash discounts for immediate payment can also be an effective tool to improve payment practices.
  3. Too much optimism in sales planning. We’re not planning an aggressive sales budget, we want to make sure we don’t run out of money. This requires a different approach to planning.

    Pro tip: Always plan with a base case, a worst case, and a best case scenario. With modern solutions like Tresio, this is possible with very little effort.
  4. The balance sheet as a starting position is not taken into account – this gives us very valuable information on how the company is doing and in particular what cash flows we are facing in the short term! Are there any obligations to pension schemes that have to be paid? Was there a lot of profit in the previous year and do we have to plan for taxes accordingly?

    Pro tip: The balance sheet gives us valuable clues about a company’s financial obligations. With the clear financial dashboards in Tresio, this data becomes tangible.
  5. Values ​​from the previous year are adopted blindly, without questioning them and adapting them to the new circumstances. Review the budget critically from time to time and see if the assumptions still match reality. It’s work, but it’s important.
  6. Investments, financing and loan repayments are often overlooked because they do not appear in the income statement. However, these inflows and outflows are very often very decisive!
  7. Value added tax and social security contributions are often forgotten. Attention, more staff means higher taxes! In particular, the Swiss social security, AHV back payments, can be hefty with rapid growth – and as a member of the board of directors, in the worst case, you are personally liable!
  8. Formula error in Excel templates. That can be devastating and lull you into supposed security. Unfortunately, it is almost impossible to avoid it, especially when several people are working on the same file for a long time. The only thing that helps here is a regular check of the cell references and formulas.

    Pro tip: Modern SaaS solutions such as Tresio rule out formula errors and ensure ongoing liquidity planning with consistent quality.
  9. No regular updating of liquidity planning – many companies plan their liquidity once a year, if at all. That’s definitely not enough. Make a budget plan once a year, transfer the values ​​to the liquidity plan and then keep them up to date at all times.

    Pro tip: Since you work very often with the liquidity plan, in contrast to an annual budget, (partial) automation of this process makes a lot of sense!

  10. Reacting too late when problems arise. If there is a lack of liquidity, there is very often no Plan B, especially for smaller companies. Running out of money in the account can really mean a very swift end. Therefore, react early if you notice any imminent bottlenecks.

    Pro tip: Share your liquidity plan regularly with your banker – you will be surprised how well this transparency is received!

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