Ensure liquidity: Cash flow planning in times of crisis

The Corona crisis is an unprecedented challenges for companies. The measures taken to contain the pandemic have severely restricted or completely halted large parts of economic life. In order to ensure their own future, companies have a primary duty to secure their liquidity. On the one hand, revenues are falling away, while on the other hand many fixed costs, for example for rents and salaries, continue to run. In view of this imbalance, it is crucial to keep an eye on cash flow.

Short and medium-term liquidity planning

Failures of the past are now becoming painfully apparent. In many cases, awareness of the importance of liquidity outside the finance department has been low. In this respect, companies are first of all faced with the task of obtaining a concrete idea of their liquidity. Where, if necessary, can additional funds be made available? What are the costs involved?

In addition to this short-term liquidity planning, medium-term planning is also recommended, which should cover the next twelve months. Suitable software solutions support the consolidation, evaluation and interpretation of company data and key figures.

Preparing for the future with scenarios

At present, it is not possible to make any serious estimate of how long the restrictions will continue and when the economic engine will be able to run at full power again. This makes reliable planning all the more difficult. In order to be prepared for all eventualities, companies should work with different scenarios and derive the respective consequences for their own solvency.

The initial question relates to the worst case: How long can liquidity be maintained if revenues dry up completely and expenditures remain unchanged? From this scenario, companies can then move closer to reality. To do this, they adjust the various variables to obtain an overall picture with possible options for the future.

Cash flow simulations play through measures

One thing is certain: speed is a crucial factor in taking measures to maintain solvency. The primary goal is to keep current charges as low as possible and to secure liquidity. With the help of cash flow simulations, companies can check the effectiveness of individual measures.

One effective means of bridging the current crisis situation with orders and sales falling away is short-time working. The wage subsidy and the assumption of social security contributions reduce the companies' personnel costs and thus have a positive effect on cash flow. Extending payment terms with suppliers can also be a suitable lever to increase liquidity. This gives companies more time and the opportunity to process and distribute the goods received. In this way, money flows into the company earlier.

But what do you do if the simulations show that the planned measures are not sufficient and the cash flow cannot be improved significantly? In this situation, a financial injection of outside capital can help to overcome liquidity bottlenecks in the short term and remain capable of acting. Of course, it must be taken into account that repayment and interest will be charged to the expenditure side in the future.

Cash flow planning requires professional tools

The examples outlined make it clear that cash flow planning with Excel no longer meets the requirements of the time. Instead, CFOs and controllers need powerful software tools to reliably take all eventualities into account with regard to liquidity. With the SAP Analytics Cloud, a wide range of planning models and simulations based on various key figures can be quickly and pragmatically implemented with ready-made business content. Intelligent technologies analyze data, uncover influencing factors and design what-if scenarios. In this way, companies prepare themselves for the future in the best possible way - no matter what the future may bring.