What is a liquidity budget?

A liquidity estimate gives you the opportunity to gain insight into the financial future of your company. It is part of the financial plan, which in turn is part of your business plan.

With this budget, you show what the expectations are when it comes to income and expenses. And it shows how much you're left with at the bottom of the line or, on the contrary, short. By making this clear in advance, you know when to take action.

The benefits of a liquidity budget:

• You can make timely adjustments if necessary.
• You have insight into the future and can therefore make smart choices for the growth of your company.
• If you want to invest, you already have insight into whether this is possible in advance.
• When applying for funding, it is nice if you can demonstrate what the forecast is. In the case of bank financing, it is necessary to provide this budget.

Part of your financial health

Liquidity is just one part of your financial health. The overall financial health is much broader. It's viewed from different aspects of your business. Do you know if your company is financially healthy? We wrote an article with five signs of a healthy company. How many signals can be applied to your company?

How do you make a liquidity budget?

The budget is about the cash within your company. It is an overview of expected income and expenses. In a few steps, you can make the liquidity budget.

1. Determine the opening balance of your business accounts on the 1st of the month.
2. List the costs and expenses per month.
3. You calculate the final balance by adding the income to the starting balance and subtracting the expenses.
4. Now you know exactly where there is room to invest or where you are short.
5. Do you know when there is a need for liquidity? Make sure you look for the right financing.

Example of a liquidity budget

February March April May Starting balance€ 6,000€ 19,900€ 20,600€ 18,650RevenuesDebtors€ 55.000€ 45.000€ 40,000€ 45,000 ExpensesCreditors € 15,000€ 20,000€ 17,500€ 20,000 Staff costs € 12,000€ 12,000€ 12,000€ 12,000 Vacation allowance €0€ 0€ 0€ 0€ 9,250 Rent/mortgage €1,500€ 1,500€ 1,500Sales tax€9,600€ 7,800€ 6,950€ 7,800 Energy costs €500€ 500€ 500 Leasing costs €2,500€ 2,500€ 3,500Total expenditures €41,100 €44,300 €41,950 €54,550 Result+€13,900+€700—€1,950—€9,550 Final balance+€19,900+€20,600+€18,650+€9,100

In this example, you can see that, despite a negative result in April and May, there is sufficient liquidity. Of course, it is good to see how the expectations are in the months that follow. You may need this money to compensate. But if this is not the case, then you have room to start investing.

Do you want to make an important investment in June and do you know you need more cash to do so? Then you can do a few things:

• Reducing spending
• Raising revenues
• Request additional funding

Increasing liquidity with funding?

Is it not possible to reduce expenses or are you unable to raise more income? Then the next step is to find additional funding. By financing extra working capital, you have the opportunity to invest. So your company can grow faster.

Want to know more about a business loan with Swishfund? On this page shows you exactly how it works and what your company must comply with at least. Do you have questions or are there any uncertainties? Then you can call or email us, we'll be happy to help you out!

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