Liquidity budget

A liquidity budget helps to create clarity about whether you have enough liquidity in the coming period to pay your expenses as they fall due.

The liquidity budget gives you an overview of your expenses and expected income, debt repayment - and debt repayment. The liquidity budget gives you an overview of which periods in the near future you will need liquidity and which are surplus liquidity. 

Why should the company make a liquidity budget?

There can be many good reasons for creating a liquidity budget. Most companies rarely have an even and stable income - or amount of expenses. 

Therefore, it can be advantageous to get an overview of which periods during the coming month, quarter, six months or financial year - in which expenses and income fall.

Companies with fluctuating expenses and income may thus find that expenses cannot be paid for a period because the income comes in a later period. Thus, the company will need to take out a loan, overdraft or operating credit in order to pay the expenses.

You will therefore often be met by a demand from your bank to draw up a liquidity budget, in order to give the bank clarity about your expenses and income - and when they fall.

In other words, the liquidity budget is a powerful tool for senior and day-to-day management, and whether there is a need for additional financing, credits or the like.

How does the company make a cash flow budget?

If you want to create a liquidity budget, we recommend that you use a template as a starting point. Because with a template for a liquidity budget, you can get started quickly, without having to waste time designing and shaping first.

We recommend that you look back as far as you can, and in the best possible way, estimate your income and expenses - and have them placed at the time you expect them to fall.

It can be a difficult discipline, but if you have historical data, you should make use of it. If you don't have historical data, you have to make an educated guess. 

Cash budget template

We recommend at all times that you use a template for the liquidity budget. It is often an easy and quick way to get started.

We also recommend that the liquidity budget is made in Excel so that it can be quickly updated and maintained.

Here at Collectia, we have developed a template for a liquidity budget that you can use for free - regardless of whether you are a customer of Collectia or not.