Your company's financial health depends on its short-term ability to pay liabilities
Your company needs cash to operate, no matter what business you’re in.
Liquidity is the measurement of your company’s ability to cover its short-term financial obligations. More than the cash your company may have in the bank, liquidity is its current ability to transform assets into cash. Liquid assets can include equipment and inventory, which can be sold for money, for example.
In accounting, we consider short-term liquidity to be a company’s ability to pay liabilities due in less than a year. Liquidity, an aspect of an organization’s financial health, is usually shown as a percentage or ratio.
Your accountant can suggest ways to increase your business’ liquidity.
Here at Kerby Accounting & Business Solutions, we recommend these liquidity boosters most often:
Increasing sales, maybe with different business models, like converting things you know sell well into subscription packages. Just make sure cash will keep pace with your company’s bills.
Reduce overhead. We always suggest this to business owners. Can you cut down on rent expenses somehow, office supplies, or insurance premiums?
Sell assets that aren’t driving revenue. This could be redundant or old equipment, or vehicles you know your company won’t use again.
Refinance debt, moving more debt from short term to long term when possible. It will mean lower rates, smaller payments each month, and free up cash for your company.
Get more aggressive with invoice collections. Maybe this means setting a goal of how much your organization collects each month in overdue billing. Or you send out more reminders to clients who are in arrears. Either way, the effort on your part will hopefully facilitate more cash coming in, launch greater liquidity and flex your company’s flexibility.
Need guidance on liquidity? We’re here!
We look forward to meeting you.