A liquidity budget is a financial statement in which you forecast how much money will come in and go out in a given period.
The aim is to understand future cash flows so that you can assess whether your company has sufficient cash in the short term to meet its obligations.
Why is a liquidity budget crucial?
A good liquidity budget helps you avoid liquidity problems. Even profitable companies can run into trouble if there is insufficient cash available to pay bills.
It also allows for better planning, as you can respond to peaks and troughs in your cash position in a timely manner. It is also an important tool in funding applications, as banks and investors often ask for a liquidity budget to assess risks.
How to prepare a liquidity budget?
You start by establishing your current starting balance: how much money is in your account now? Then you estimate income, such as sales, grants, loans or other cash flows. Then you map out expenses, including salaries, rent, suppliers and taxes.
Based on this data, you calculate the closing balance for each period to see whether there are any deficits or surpluses. Finally, you analyse this information and make adjustments where necessary. Will there be a deficit? Then you can take measures, such as speeding up invoicing or applying for credit.
Common mistakes in liquidity budgets
Mistakes are often made when preparing a liquidity budget. For instance, turnover forecasts are sometimes too optimistic, with insufficient account taken of realistic payment terms. Incidental costs, such as tax assessments or maintenance, are also regularly forgotten.
In addition, scenario analysis is often lacking, leaving companies unprepared for situations where a large customer pays later than expected.
TriFact365’s perspective
At TriFact365, we believe that a good liquidity budget starts with up-to-date and reliable data. Invoices that are processed quickly and correctly give you a realistic picture of your liabilities and income.
Our software automates the processing of purchase and sales invoices, ensuring you always have up-to-date information. This makes budgeting not only easier, but also more accurate. So you can manage cash flow and growth with confidence.
