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Blog post from November 29, 2021

Liquidity planning explained: About income, expenses and solvency


Some companies forego liquidity planning entirely, based on the motto: “It will work out somehow.” But at some point, even the most successful entrepreneurs are caught up in a lack of overview of their income and expenses. In this article we will explain to you what is important in liquidity planning and how special tools make the work easier.

What is the goal of liquidity planning?

Liquidity planning is intended to prevent a company from defaulting on payments or becoming insolvent. In some cases, bankruptcy could have been prevented if those responsible had carried out liquidity planning.

This often shows in advance whether a liquidity bottleneck is to be expected in the coming months. Planning therefore provides time to prepare for the bottleneck and take countermeasures in a timely manner.

Another goal of liquidity planning is to constantly keep an eye on the company's costs. If you take a closer look at your expenses, you can often identify points where you can save. Saved costs have a direct positive effect on the company's liquidity.

What components does liquidity planning have?

It's very simple to say Liquidity planning the comparison of expected income and expenses within a certain period of time.


In liquidity planning, the income side consists of all incoming cash flows that flow into the company. Examples of income include:

  • Payments by customers
  • Cash and cash on hand
  • checks
  • Tax refunds
  • Subsidies/funding
  • Credits for the company


On the expenditure side, liquidity planning includes all outgoing cash flows that flow out of the company - i.e. the costs. For example, these are:

  • Staff salaries/wage payments
  • material costs
  • Building rental costs
  • general operating costs (electricity, water, heating)
  • Software subscriptions
  • Supplier payments
  • Insurance costs
  • Leasing fees for machines or vehicles

Depending on the company, there are other costs. The above list should therefore not be viewed as complete.

How do you create a liquidity plan?

For a certain period of time, for example for a month, you compare the income with the expenses and determine the balance by deducting the expenses from the income. If the balance is negative, this represents a liquidity deficit; if it is positive, you have generated a liquidity surplus.

This principle can be applied to both the past months and the coming months. If you have never done liquidity planning before, you should first look at your past income and expenses. This shows recurring patterns. These are important when creating liquidity planning for the coming months, as you can only work with estimated values.

It is helpful for initial liquidity planning to check past cash flows for the following patterns:

  • How high are the fixed costs? These are easiest to project into the future because they are the same every month. This includes, for example, personnel costs and rent.
  • Are there months each year that tend to be low/high income? Such fluctuations should also be taken into account in future liquidity planning.

For the sake of simplicity, you group the income and expenses into different categories and then enter the total for each category in a table, e.g. personnel costs or customer payments.

The balance is then determined from month to month. Enter estimated values into the table for future months. It is important to draw as realistic a picture of the future as possible. If customer demand is expected to fall, this should be taken into account with lower income. In this way, possible liquidity bottlenecks can be identified in advance if a persistent liquidity deficit is generated.

Digital tools for a better overview and more planning security

Those responsible or their employees often do liquidity planning in Excel. That's not wrong, but it's awkward. With this procedure, all business accounts must be viewed and the income and expenses entered into the Excel table according to the categories. This is time-consuming and error-prone.

Planning is much easier with digital tools designed specifically for liquidity management. The liquidity planning software Agicap, for example, automatically synchronizes with the bank servers and retrieves all transactions from the business accounts every day and stores them in the designated categories. Employees no longer have to type in and add up amounts, and they have a daily updated one at the push of a button Overview of liquidity.

Various liquidity scenarios can be defined for planning, which can range from pessimistic to realistic to optimistic. This means those responsible can see the entire spectrum in which company liquidity can move in the coming months. This makes it easier to make strategic decisions in order to possibly prevent a liquidity bottleneck.

Conclusion: Liquidity planning is easy with the right tools

Liquidity planning plays an important role in a company's financial planning and helps to keep costs lean and avoid liquidity bottlenecks. If you want to make planning as easy as possible, you should use liquidity management software that handles routine tasks automatically. This means that liquidity planning is always up to date and those responsible always have a well-founded data base on which they can make important decisions.

About Dr. Nirmalarajah Asokan:
blankDr. Nirmalarajah Asokan is Senior Content Marketing Manager at Agicap in Berlin. He specializes in liquidity management, cash flow and financial planning. He is currently responsible for the conception, optimization and implementation of content marketing for the liquidity management tool Agicap.

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