Liquidity-Assessment – The valiant little tailor during the crisis

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Due to the current corona-crisis, many entrepreneurs have their back to the wall. Due to ongoing bad news and setback of revenues, entrepreneurs do not know how to continue.

In such a situation a solid liquidity assessment may generally help due to several reasons. Such a liquidity assessment is an evaluation of the company’s liquidity for the near future with a current separate assessment based on effects caused by the corona crisis.

Such an assessment is a requirement to apply for most of the liquidity support programs. But even for immediate liquidity relief programs, the entrepreneur should set up such a liquidity assessment to solidly document the liquidity need for the future.

The liquidity assessment has several purposes:

Jointly with his consultant, the entrepreneur will approach the current problems in a structured manner. Negative thoughts initiated externally will be banned. The consultant will show up options how to carry the company through the difficult times. Should the entrepreneur have missed certain liquidity-conserving measurements, this will be revealed in cooperation with the consultant. Respective applications for deferments of tax- or redemption payments, or reductions of tax-prepayments may be issued. The result is an objective picture of the liquidity situation of the company for the near future.

With the help of a liquidity planning the company will assess a going concern projection under the assumption that the liquidity aid will be granted. The liquidity assessment is based on solid assumptions for the future, the realization of which is a requirement for the going concern projection. This on the one hand helps psychologically as the future hopefully looks better again. On another hand, such a liquidity assessment may prevent the entrepreneur from preventatively having to file for insolvency due to excessive indebtedness. With such a liquidity assessment the entrepreneur will basically have a positive going concern analysis. The accusation “you should have filed for insolvency earlier” has no merit anymore as the company based on the liquidity planning was not excessively indebted.

Last but not least the liquidity assessment will comprise all operative financing needs and investments, which are required for a positive going concert projection, i.e. the future liquidity need, in a comprehensive manner. Respective assumptions are to be described and will be checked by the consultant. The in general prevents a later prosecution for subsidy fraud. Such criminal proceedings are being almost already being promised in certain application forms. Should assumptions not be realized, which is always possible as no one may look into the future, the entrepreneur could later hardly prove that his earlier assumptions had been solidly founded. A respective accusation might be: “You stated wrongful, subsidy-relevant assumptions.” It is much better then to being able to present a structured assessment.

A solid liquidity prognosis has many advantages one of which is that it prevents the responsible entrepreneur to not seeing the wood for the trees. Or to put it in other words: “A solid liquidity planning may in the present situation for companies be the light at the end of the tunnel.”

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