Cash flow planning
Most young companies don’t fail because of a lack of profit but because of a lack of liquidity. Cash flow planning makes sure you can pay your bills at all times.
Profit is not the same as liquidity
A company can be profitable and still be unable to pay – for example if customers pay late but you have to pay suppliers and salaries immediately. Cash flow planning looks at the actual payment flows, not just profit.
Plan monthly
Record all expected incoming and outgoing payments for each month. The running balance shows you when things will get tight – early enough to take action, for example with a credit line or adjusted payment terms.
Spot bottlenecks early
The plan is an early warning system. If a negative balance appears, you can react before it becomes critical – through financing, faster collection of receivables or postponed spending.
Frequently asked questions
What is the difference between liquidity and profit?
Profit is income minus expenses over a period. Liquidity is the money actually available at a given point in time. You can be profitable and still be unable to pay.
How often should I update my cash flow plan?
At least monthly, and more often in the early phase. That way you spot bottlenecks early and can take action in time.
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