Liquidity: the one report every board wants to see

The change of ownership closed six weeks ago; the first hundred days are running. The new chairman has read the monthly report – 28 pages, EBITDA ahead of budget – and asks exactly one question in the first board meeting: «Does the cash last until quarter-end, and where does it get tight?» The CFO knows this morning's bank balance. What he does not have is the path of the next thirteen weeks, with payroll, VAT, the large order that is paid only after acceptance, and the credit line up for renewal in January. The answer arrives on Thursday by e-mail, from an Excel file only he understands. The liquidity report the board wants does not exist.

Why investors and boards ask about cash first

Three reasons, and none of them is about distrust. The first is legal: since the 2023 revision of Swiss company law, Art. 725 of the Code of Obligations explicitly requires the board to monitor the company's solvency. A statutory duty to prepare a liquidity plan did not make it into the final text, but the monitoring duty is hard to meet without a forward-looking cash view – whoever knows only today's balance is monitoring the past (OBT 2023).

The second reason is the hardness of the number. Revenue, EBITDA and profit are the result of accruals, provisions and valuations; Ossola-Haring, Schlageter and Schöning devote a whole chapter to the fallacy that «numbers don't lie», because the balance sheet can be shaped (Ossola-Haring et al. 2019, fallacy 9). The bank balance is the only number in the report that nobody can shape – which is why it is the first one a board believes. Weber and colleagues add that a top metric must be easy to understand, or it will not be used in decisions (Weber et al. 2017, p. 226); for an SME, cash is the most understandable top metric there is.

The third reason is the investor. Whoever finances a company wants to know when they will have to inject funds and when they can take money out. The torq.partners guide to investor reporting at private equity level lists the typical mistakes on the company side: «KPI inflation», uncontrolled growth of Excel files, reports without an executive summary (torq.partners n.d.). The remedy is always the same: few numbers, one of them right at the front – liquidity in weeks.

What it costs when this report is missing shows in two scenes. Scene one: on the 24th, the balance does not cover payroll because two key accounts are taking 60 days instead of 30. The credit line is drawn overnight, the bank learns of it from the account statement, and the January renewal is a different conversation from that day on. Scene two is quieter and more expensive: for months, the account holds two million more than the business needs, because nobody can say how much it needs. The investment is postponed by a quarter, the dividend halved as a precaution. Both decisions would have gone differently with a weekly cash view.

The frame we use to build such a report is our framework «From decision to metric»: decision → question → metric → data → report → effect → review. Liquidity is the field where it can be worked through in one article, because the decisions are so clear.

From decision to metric: liquidity reporting in seven steps

The decision. Four decisions hang on liquidity, and they recur: prioritising payments (who gets paid this week, who next), drawing or repaying the credit line, releasing or postponing an investment, and approving a dividend or a repayment to the owner. The decision inventory records decision-maker, rhythm and stake for each: the CFO prioritises weekly, the management team decides monthly on the credit line, the board quarterly on investment and dividend. Whoever has filled in these four lines already knows that a monthly cash flow derived from the P&L will not do.

The question. Which question must be answered for the decision to come out differently? For all four it is the same, in two halves: does it last until quarter-end – and in which week does it get tight? The second half matters more. «Does it last» is a yes-or-no answer; «where does it tip» says how much time is left for countermeasures. That is the early-warning question from our discovery guide: how do you notice things are going wrong – and how many weeks in advance?

The metrics. Four, no more. First, cash runway: available funds including the undrawn credit line, divided by the average net cash outflow per week – in weeks, not francs, because weeks are the language of the decision. Second, the 13-week forecast using the direct method: receipts and payments per week, opening balance plus cash flow equals closing balance, rolled forward every week. Thirteen weeks is a quarter, and the horizon is the compromise between reach and accuracy – the further a plan reaches into the future, the less precise it becomes (re:cap n.d.). Third, the cash conversion cycle: days of inventory plus days of receivables minus days of payables. Baumüller presents it as the answer to how long a company pre-finances its operations; a negative value means the suppliers are financing them (Eschenbach et al. 2021, p. 113). Kunesch asks the same question from the procurement side: who is financing the operating process? (Eschenbach et al. 2021, p. 29). Fourth, forecast accuracy: the gap between the closing balance forecast one to four weeks ago and the actual one. Without it, the forecast is an opinion.

Each metric has a cadence and an owner: runway and forecast weekly with the CFO, cash conversion cycle monthly with the CFO together with purchasing and sales, forecast accuracy weekly with the controller. In the three-way split profitability – growth – liquidity that we use for every management cockpit, this is the third row – and for a few months after a change of ownership, the first.

The data. This is where it is decided whether the forecast holds. The direct method needs due dates, not accounting periods: open receivables with the expected payment date (not the contractual one – payment behaviour per customer over the last twelve months is the better source), open payables with the planned payment run, the order book with payment dates for weeks five to thirteen, payroll with social security, tax and VAT dates, approved investments, interest and amortisation dates. And one rule that matters more than any chart: the opening balance of every week is the reconciled bank balance. Not cash according to the ledger, not the balance according to Excel. Reconcilability before beauty – a forecast whose starting point sits five per cent off the bank statement has lost the board by the second meeting.

13-week cash flow forecast, direct method – the first four weeks, TCHF (TCHF)
Line	Wk 44	Wk 45	Wk 46	Wk 47
Opening balance (bank, reconciled)	1,950	1,840	1,620	1,710
Receipts from customers	+620	+480	+560	+390
Payments to suppliers	−410	−380	−420	−360
Payroll and social security	−290	0	0	−290
Taxes and VAT	−30	−320	0	−20
Capital expenditure	0	0	−50	−50
Closing balance	1,840	1,620	1,710	1,380

Fictitious example. Every week starts from the reconciled bank balance; the lines follow cash flows, not P&L accounts. The structure is the same through week 13 – from week five onwards fed by the order book and experience values rather than open items.

The table is the controller's tool – the hammer. The board needs the glasses: a chart that answers «where does it tip» at a glance.

The report. In IBCS® terms: time runs from left to right, actuals are a solid dark line, the forecast picks up where the actuals end, and the minimum cash level sits in the picture as a dashed baseline. It is the reference against which everything is read – not the zero line. The board sets it, typically one payroll run plus a quarter's VAT, and from then on the rule is deviation instead of value. How many weeks does the forecast sit below the baseline, and by how much? That is the only statement the page has to make.

Fictitious example. Four weeks of actuals, nine weeks of forecast, minimum cash level as a dashed baseline. Two breaches are visible: week 49 (payroll before the large order is paid) and week 1 (VAT, payroll, December payment delays from customers). That is exactly where the response path kicks in – six weeks ahead, not the day before.

The page below – the management team's report – shows the forecast-versus-actual deviation of the last four weeks, the cash conversion cycle against prior year and target, and the three largest items moving the forecast. Nothing more. Whatever stays within the ±5 % threshold gets no comment.

The effect. A liquidity report only works in a weekly rhythm. Friday bank reconciliation, Monday updated forecast, Tuesday fifteen minutes in the management meeting – that is the cadence, and the owner is the CFO, not the controlling team. The effect itself is a response path agreed in advance: if the forecast breaches the minimum cash level in any of the next eight weeks, stage one applies (prioritise payments, bring the dunning run forward); if the breach exceeds a defined amount or lasts longer than two weeks, stage two (draw the credit line, postpone the investment, inform the chairman). Ossola-Haring et al. call this the transition from passive reporting to active steering: green is skipped, amber is discussed, red triggers an action on the action list (Ossola-Haring et al. 2019, pp. 96–99). The board thus sees not only the number but what has been done about it since the last meeting.

The review. Forecast accuracy is the review instrument, measured per horizon: how far was the closing balance forecast one week ago from the actual – and the one forecast four weeks ago? Ten per cent off one week out is a data problem, usually in the expected payment dates of receivables. Fifteen per cent off four weeks out is an order book problem. Both are work orders, not accusations.

Fictitious example. Up to three weeks the deviation is within bounds; from four weeks it breaks away – a sign that weeks five to thirteen are fed by experience values rather than the order book.

What a group needs, what an SME needs

For a single company with one bank and one ERP, the 13-week forecast lives comfortably in Excel – as long as the opening balance is reconciled and the file does not belong to one person only. For a group with several entities, banks and systems, the tool tips over: the forecast per entity exists, the consolidated view with intercompany payments and cash pool does not. That is where a data model begins that brings open items, payment runs and order book from all sources into one table. In a staged reporting build, the weekly cash view is rarely the first stage, but almost always the second.

From practice

In a services group with several entities, each entity knew its own liquidity – every finance lead had their own forecast in their own file. Consolidated, nobody knew how much the group would have in the bank in six weeks, because intercompany payments and the various banking relationships never came together. Once the group cockpit was in place, the weekly cash view was the first additional window the management team ordered. I pulled the open items and the planned payment runs from the source systems into the same data model that already fed the monthly report, and reconciled the opening balance of every week against the bank balances. The effort lay less in the technology than in agreeing what «expected payment date» means in each entity. Since then, the consolidated 13-week path has been on the table every Monday.

One thought from functional controlling fits every line of this forecast. Writing about inventory metrics, Kunesch observes: «Nothing is more wrong than the stock level at the balance sheet date» – the true average stock is not a standard report in most systems (Eschenbach et al. 2021, p. 28). The same holds for the bank balance: the month-end figure is a snapshot, often the most flattering one of the month, because payment runs sit before and after it. Whoever wants to steer liquidity needs the path between the reporting dates – and only the weekly view delivers that.

What you can do tomorrow

Take today's bank balance and write down the next four weeks using the direct method: opening balance, receipts, payments in five lines, closing balance. Compare with the bank statement in four weeks. The deviation tells you where the data is missing – usually in the expected payment dates of receivables. And before every additional metric, ask the purpose question: what are these numbers supposed to say, and what are they for? For the board, the answer fits in one sentence: how many weeks are we away from the baseline?

If the report has to stand up for a new owner, a bank negotiation or a board with new expectations, our scoping sprint is the entry point: two to three weeks, fixed price, ending in a decision-ready target picture with decision inventory, metric profiles for runway, forecast and cash conversion cycle, measurement plan and notation concept – ready to build, in Excel or on a data platform.

Sources

Eschenbach, R., Baumüller, J., Siller, H. (eds.) (2021): Funktions-Controlling. Praxishandbuch für Unternehmen, Non-Profit-Organisationen und die öffentliche Verwaltung. 2nd edition, Springer Gabler – including Kunesch: Beschaffungs-Controlling, pp. 11–36; Baumüller: Finanz-Controlling, pp. 85–120.
Ossola-Haring, C., Schlageter, A., Schöning, S. (2019): 11 Irrtümer über Kennzahlen. Mit den richtigen Erkenntnissen führen. 2nd edition, Springer Gabler.
Weber, J., Bramsemann, U., Heineke, C., Hirsch, B. (2017): Wertorientierte Unternehmenssteuerung. Konzepte, Implementierung, Praxis-Statement. 2nd edition, Springer Gabler.
torq.partners (n.d.): Guide for CFOs: Investor Reporting at the Private Equity Level. torq.partners
re:cap (n.d.): 13-Wochen-Liquiditätsplanung: Das musst du wissen. re-cap.com
OBT (2023): Die neuen Pflichten des Verwaltungsrats bei finanzieller Notlage der Gesellschaft (Art. 725 ff. OR). obt.ch