The current price developments are putting many companies under massive pressure. How will this affect liquidity? A company’s accounting can provide many insights.
Corona pandemic, Ukraine war, supply chain problems and rising costs: Many companies can hardly breathe and have to face numerous challenges. Some companies are uncertain about the future: Will the company remain economically stable despite these developments?
How much cash and cash equivalents do you have?
However, anyone who thinks that a look at the bank account is enough to get an overview is mistaken. For example, the bank balance alone does not provide any information about which receivables are currently outstanding or which liabilities will soon become due. Accounting can provide a lot of information so that a company can better evaluate its own situation.
Business evaluations
Especially in small and medium-sized companies, for example, business evaluations (BWA) are prepared. Companies often receive support from their tax advisor. But for the BWA, the data of the current financial accounting is required. Numerous key figures are determined here. But if you want more information, you can go one step further and have a balance sheet analysis carried out.
Analysis of balance sheet and P
With a so-called balance sheet analysis, companies can put their own figures to the test. There is no need to wait until the annual financial statements are prepared for a balance sheet analysis. This can also be done during the year. Anyone who fulfils their record-keeping obligations in full and promptly, as required by the principles of proper accounting, has the necessary up-to-date data. Ideally, monthly or quarterly reports can be prepared on a regular basis so that management can access up-to-date information. The prerequisite is that the accounting department is modern and professional.
In a balance sheet analysis, not only the balance sheet data is looked at more closely, but also the profit and loss account. For example, companies can analyze:
- How much revenue was generated?
- What about working capital? Is too much capital tied up on the balance sheet?
- How much equity is available?
- How much debt capital is available?
- Is there a risk of over-indebtedness?
One key figure alone is not enough: Only by determining various key figures can companies take a closer look at their financial situation.
Rising energy prices fuel existential fears
Rising energy prices in particular are causing headaches for many companies. But blind panic does not help here. Strategic decisions must be made on the basis of reliable data.
Of course, ongoing accounting reaches its limits here. It only records the monthly instalment payments. But even with this data, companies can carry out analyses:
- Do the monthly energy costs correspond to the planned costs?
- What changes have occurred compared to previous years?
- Does corporate planning need to be adjusted?
Analyze data and plan actions
This data should be collected in order to take a closer look at current price developments and align liquidity planning accordingly: If the electricity provider announces a price increase, this should be taken into account in the planning as soon as possible and it should be checked whether the liquid funds are sufficient in the long term. In addition, various considerations can be made, such as:
- Could funding opportunities for the company, e.g. from the KfW Bank, be considered?
- Is the price calculation for the goods/services offered still realistic? And if not, what price increases could be expected of customers (also compared to competitors)?
- Can the company be made more energy-efficient (for example, checking the lighting system)?
- Are there perhaps even enough liquid funds to finance long-term investments, such as a photovoltaic system? Could this relieve the company’s energy cost situation in the long term?
Tip: For a balance sheet analysis, empirical values in accounting prove their worth. In cooperation with a tax advisor and/or a specialized accounting advisor, companies that fear considerable difficulties in the long term can uncover weak points and identify possible measures. The time factor plays a major role in this!
As an outsourcing partner for reporting and controlling, we provide our customers with targeted support in reporting. We also take on tasks in the course of corporate planning, carry out balance sheet and P analyses. For more information about this service, please do not hesitate to contact us.
Image source: Adobe Stock Photographer: wutzkoh
Author
Sylvia Meier
Guest Author
Sylvia Meier is a certified financial economist (FH) and has worked at the tax office, in consulting (Big Four firm), and for a specialized publisher. Today, as a freelance consultant, she supports companies and can demonstrate numerous publications, particularly on the topics of taxes, controlling, accounting, and finance.
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