How to draft a liquidity budget

  • Marty Zanen
  • Step-by-step plan
  • 6 August 2019
  • Edited 4 July 2023
  • 2 min
  • Managing and growing
  • Finance

A liquidity budget enables you to track your company's finances. You calculate how much money is in your bank account after income and expenses. That way, you can quickly see if you have enough money to pay the bills. And in which months you may need extra funds. Or what would be a good month to buy a new computer. The liquidity budget is an indispensable part of your financial plan. Your financial backers will ask you for it, and it helps you plan ahead. Find out how to make one.

What is the difference between liquidity budget and operating budget?

A liquidity budget shows your income and expenses per month or per quarter. This ultimately also provides an overview on an annual basis. In an operating budget you budget amounts per year. These amounts do not include VAT.

Draw up your liquidity budget in 4 steps

1. Opening balance

Determine the opening balance as of the 1st of the month.

2. Income and expenses

List the income and expenses you expect in the following months.

3. Surplus or shortage

Determine whether there is a surplus or a shortage in a given month. Example: you employ staff. You have to pay their holiday allowance in May. In the liquidity budget, you set aside sufficient money for these expenses in May. You also ensure that you have sufficient money for the other expenses in that month.

4. Additional financing

Do you see a shortage in a certain month? Then take action in time and arrange additional financing as soon as possible. For example, you can request extra working capital.

Example of a liquidity budget

Month 1Amount in euros
Bank balance beginning of month10,000
Customer payments received8,000
  
Payments to suppliers1,000
Rent1,000
Wages2,000
Private withdrawal2,000
VAT payable1,600
TOTAL income and expenses400
Bank balance end of month10,400
 
Month 2Amount in euros
Bank balance beginning of month10,400
Customer payments received7,000
  
Payments to suppliers800
Rent1,000
Wages2,000
Private withdrawal2,000
VAT payable1,400
TOTAL income and expenses- 200
Bank balance end of month10,200

 

Video: Make a financial plan

Tips

  • Take your customers' payment terms into account. On average, private individuals in the Netherlands pay after 30 days. Companies usually pay between 30 and 90 days.
  • Take holidays into account: if your company closes during the holiday period, you will not receive any new assignments during that period.
  • Some payments are at fixed times. For example, taxes, rent, telephone costs and wages. You cannot postpone these payments.
  • State VAT in a separate column. Take into account the VAT return you need to file and pay. Most businesses file a VAT return every 3 months over the previous quarter. In the following month, you pay the due amount of VAT to the Tax Administration. There is a chance that you pay VAT before you have received the money from your customer. For instance, if you have sent the invoice in February, filed your VAT return in March, paid the VAT in April, and receive payment in May.

Call in help

Do you need help drawing up your liquidity budget? You can hire a bookkeeper or accountant via NOAB (in Dutch) or NBA.

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