How can I use my profit and loss statement to improve my liquidity?
December 23, 2022 | 40,00 EUR | answered by Jonas Kessler
Dear Tax Consultant,
I have a small business with an annual turnover of about 100,000 euros. In recent months, I have noticed that my liquidity is becoming increasingly tight and I am having difficulty covering my operating costs. Although I have prepared a profit and loss statement, I am not sure how to use it to improve my liquidity.
Currently, I am able to increase my profits each month with my turnover, but I still do not have enough money available to pay my suppliers on time. I am worried that I may face payment difficulties in the future, which could jeopardize my business.
Therefore, my question to you is: How can I use my profit and loss statement to improve my liquidity? Are there specific key performance indicators or indicators that I should pay particular attention to? What measures can I take to secure my ability to make payments and strengthen my liquidity?
Thank you in advance for your help and support.
Sincerely,
Gerald Koch
Dear Mr. Koch,
Thank you for your inquiry and your trust in my expertise as a tax advisor. It is very important that you think about your liquidity early on to avoid future payment difficulties and secure your business. The profit and loss statement is an important tool to analyze your financial situation and identify opportunities to improve your liquidity.
First of all, it is positive to hear that you have prepared a profit and loss statement. This gives you an overview of your income and expenses and shows whether your business is profitable or not. However, it is important to note that a high profit in the profit and loss statement does not automatically mean that your liquidity is sufficient. It may well be that you are generating high profits but still experiencing liquidity shortages if, for example, your receivables are not paid on time.
To improve your liquidity, you should first focus on the key figures and indicators in your profit and loss statement. An important indicator is, for example, the cash flow, which indicates how much money is actually flowing into your business. A positive cash flow is a sign of good liquidity. If you find that your cash flow is negative, you should investigate the causes and take measures to improve it.
Another important key figure is the profit margin, which indicates how much profit you generate per euro of sales. A high profit margin is a good sign of your company's profitability, but it is also important to ensure that you have enough liquidity to cover your ongoing costs.
To strengthen your liquidity, you could consider measures such as shortening payment terms for your customers or optimizing your inventory management. Also, reviewing your cost structures and reducing unnecessary expenses can help improve your liquidity.
I recommend that you conduct a detailed analysis of your profit and loss statement together with your tax advisor and develop specific measures to improve your liquidity. By targeting your financial situation, you can prevent payment difficulties and secure your business in the long term.
I hope that my tips are helpful to you and I am available for any further questions.
Best regards,
Jonas Kessler
