Increase Liquidity For Your Business

Maintaining your business’ health and pursuing its goals is one of your major obligations as a business owner. Especially when it comes to the financial aspects, no matter what size your company is. With that in mind, one of the important things you have to keep in mind is your business liquidity. You have to understand what exactly it is, and how to increase it. Because doing so will ensure your business’ financial stability and growth. So learn how to Increase Liquidity For Your Business

Understanding Liquidity

Liquidity is the measure of how easily an asset can be exchanged. Or basically means how quickly you can get money out of an asset. The quicker the conversion to cash of these assets, the stronger a company’s liquidity is. To better understand, here are some examples of liquid assets:

  • Cash (on hand, savings account, checking account)
  • Stocks and marketable securities.
  • Money market funds
  • Bond funds
  • Mutual funds
  • Accounts Receivable
  • Inventory (raw materials, unsold goods, etc.)

Those assets can easily be converted to cash. Except for inventory that may or may not easily converted. For instance, in times of crisis. 

Now, why is this important? Let’s just say you are trying to attract investors or incur additional debt, your company’s liquidity is the basis of its capability to pay liabilities. It is the metric of its creditworthiness and overall financial strength.

Also, failure to calculate and manage business liquidity will result in high liquidity risk. For instance, its capability to pay liabilities (bills, accounts payable, taxes, loans, etc.). Which will, later on, result in insolvency, bankruptcy, or shutting down of business, permanently. With high liquidity risks, it only means that your business has a weak cash flow control, heavy dependency on capital infusions in the form of loans, or heavy working capital tied up in inventories. So… it’s better to learn how to calculate and even increase it.

Business Liquidity Calculation

Some may say that there is no specific formula when calculating your company’s liquidity. However, by measuring it in the form of ratios, there are actually formulas. Thanks to the brilliant mind behind it, whoever that person is. Now, let’s check three of these liquidity ratios:

  1. Working Capital Ratio or Current Ratio

This is one of the easiest, and commonly used method of ratio analysis. All you need to do is use the entries from the business’ balance sheet. To be exact, you need the value of current assets and current liabilities. Here’s the formula:

  • Current Ratio = Current Assets / Current Liabilities
  1. Quick Ratio or Acid Test Ratio

In this ratio, we have to exclude the value of your inventory as we only need most liquid assets. Here are the formulas:

  • Quick Ratio = (Current Assets – Inventories) / Current Liabilities
  • Quick Ratio = (Cash and Equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities
  1. Cash Ratio

This one narrows the calculation to only the quickest assets liquidity. It means no inventory and Accounts Receivable. Here’s the formula:

  • Cash Ratio = (Cash Equivalents + Marketable Securities) ÷ Current Liabilities

All of these formulas depend on higher results. Meaning if it’s 1 or higher, it means your liquidity is stable or strong. Otherwise, there’s liquidity risk. To understand it further, here’s a quick sample:

A ratio result of 2.0 means your company has $2.00 of liquid assets available to cover each $1 of current liabilities. If the ratio is 0.75 it means the liquid asset is only $0.75 to cover each $1 of current liabilities.

Tips for Increasing Liquidity

Now that we know how to check the health of the company’s liquidity, let’s check how we can improve it by following these tips:

  • Lessen Overhead Expenses

Rent, marketing, and other indirect expenses are called Overhead Expenses. Those expenses get paid using the money from your cash flow. If you can reduce those expenses without sacrificing any business operation or by using an alternative way, then do it. The less you spend, the higher the liquidity of you’ll have.

  • Setup and Leverage Sweep Accounts

A Sweep Accounts allows you to automatically transfer excess cash to higher interest-earning investment options or to a money market fund. This will definitely increase liquidity as these investments can be taken back quickly when needed. 

  • Let go of Idle Assets

Check assets that are not needed but still adds to your expenses. Especially those that are not generating revenue and idle. Let those go to free your cash flow from unnecessary expenses. 

  • Pay Close Attention to Your Accounts Receivable

Collecting payments in time from your clients and customers will ensure cash flow health. You may want to try giving some freebie or discount to those who can pay early. Keep in mind that the quicker you get cash and pay your bills, the healthier and stronger your liquid assets will be.

  • Invest in Automation

Automation of processes and tasks will increase productivity and efficiency, at the same time, reduce expenses. 

Final Word

Mind that liquidity is extremely important when considering your trading positions and even your ability to exit them. Liquidity ensures you can easily get in and out of the market. Basically, liquidity should be your basis in the financial status, and growth of your business. 

See Also: SAVING TIPS FOR SMALL BUSINESSES AND STARTUPS

Social Share:

sbobet 88

Slot Deposit Pulsa 10k

Slot Deposit

Slot Server Luar

Daftar SBOBET

Situs Judi Slot Terbaik dan Terpercaya No 1

Slot Deposit Pulsa

Casino Online Uang Asli

daftar sbobet

Slot Bonus New Member 100

Slot Deposit Dana

Akun Pro Thailand

RTP Slot Gacor Hari Ini

Slot Deposit Via Pulsa

RTP Slot Gacor

Slot Deposit Dana

daftar sbobet

Akun Pro Kamboja

Slot Online Deposit Pulsa

agen sbobet

Slot Deposit Ovo

RTP Slot Pragmatic Tertinggi Hari Ini

RTP Slot Hari Ini

sbobet88

Slot Deposit Via Dana

Depo 50 Bonus 50

Depo 50 Bonus 50

RTP Live

Live Casino

Depo 50 Bonus 50

SBOBET

Slot Deposit Pulsa 10rb

RTP Slot

RTP Slot

Bonus New Member

Slot Bonus New Member 100 di Awal

Bocoran RTP Slot Gacor Hari Ini

Slot Deposit Via Dana 10rb

sbobet 88

RTP Slot Tertinggi

depo 50 bonus 50

sbobet 88

Depo 50 Bonus 50

Slot Deposit OVO

RTP Live Pragmatic

RTP Slot Pragmatic Tertinggi Hari Ini

Slot Gacor Terbaru

Judi Roulette Online

Slot Online Deposit DANA

RTP Slot Tertinggi

Slot Gacor Terbaru

RTP Slot

Slot Deposit Via Dana 10rb

Slot Bonus New Member 100 di Awal

Judi Bola Online

RTP Slot Pragmatic

RTP Slot Pragmatic Tertinggi Hari Ini

Slot Deposit Via Dana 10rb

RTP Slot

Slot Bonus New Member 100 di Awal

Slot Gacor

Slot Deposit Via Dana 10rb

sbobet 88

RTP Live

Slot Gacor Terbaru

RTP Slot Tertinggi

RTP Slot Pragmatic Tertinggi Hari Ini

Slot Deposit Via Dana 10rb

sbobet 88

Bocoran RTP Slot Gacor Hari Ini

Slot Bonus New Member 100 di Awal

Slot Gacor Terbaru

Slot Deposit

RTP Slot Tertinggi

Rolet Online

Roulette

RTP Live Pragmatic

Bakarat Online

RTP Slot Gacor

Slot Bonus New Member 100 di Awal

RTP Live Pragmatic

Bonus New Member

Slot Gacor Terbaru

Slot Deposit

RTP Slot Tertinggi

slot online

slot online

RTP Live Pragmatic

slot online

Slot Deposit

Roulette

Depo 25 Bonus 25

Slot Gacor Terbaru

Roulette

Slot Gacor Gampang Menang

Slot Bonus New Member 100 di Awal

Agen Roulette Online

Slot Deposit Via Dana 10rb

slot tergacor

Agen Roulette Online

Slot Deposit Via Dana 10rb

sbobet 88

Slot Gacor Terpercaya

Slot Gacor Terpercaya

slot gampang jackpot

Akun Pro Kamboja

Judi Bola Online

Agen Casino Online

Agen Casino Online

sbobet 88

Slot Deposit Via Dana 10rb

Slot Deposit

slot gacor gampang menang

Casino Online Uang Asli

Bakarat

Slot Deposit

Casino Online Uang Asli

Depo 25 Bonus 25

Slot Bonus New Member 100 di Awal

Agen Roulette Online

slot gacor gampang menang

sbobet 88

RTP Slot

Slot Gacor Terpercaya

Agen Casino Online

RTP Slot Pragmatic Tertinggi Hari Ini

Slot Deposit Via Dana 10rb

Slot Deposit Via Dana 10rb

Slot Gacor Hari ini

slot gacor gampang menang

Agen Roulette Online

RTP Slot Tertinggi

Agen Roulette Online

Slot Bonus New Member 100 di Awal

Depo 25 Bonus 25

slot Gacor Terbaru

slot gacor gampang menang

Judi Bola

Slot Online Bonus New Member

Slot Gacor Online

Situs Judi Bola

Depo 25 Bonus 25

Slot Online Bonus New Member

Slot Gacor Resmi

Slot Gacor Gampang Menang

Slot

situs slot gacor

slot gacor

IDNPLAY

Situs Judi Bola

slot gacor 2023

situs slot gacor

Situs Slot Gacor

Slot Gacor Hari Ini

Slot Bonus New Member 100 di Awal

Slot Deposit Via Pulsa 10rb

Slot Gacor Maxwin

Situs Slot Gacor

slot resmi

situs slot gacor

Slot Deposit Via Dana 10rb

Situs Slot Resmi

Slot Gacor Hari Ini

Slot Gacor Hari Ini

slot gacor gampang menang

slot gacor