Looking at your company’s liquidity ratios can often leave you concerned when you realize they’re not as high as they should be. Low liquidity value means that your business won’t have the ability to convert its assets into cash. As well as that, it means that you won’t be able to sell or buy assets without affecting the price of the business. In order to run your business, you need cash. Therefore, you need to increase your liquidity. There are several easy ways you can do that.
1. Say goodbye to useless assets
No matter how big or small a business may be, it’s unavoidable to have unproductive assets. So by that logic, it’s evident that your business also has some assets that are not just unnecessary, but useless. You’ll recognize those assets because they’ll be just wasting resources and lying there without earning you any money. Why would you want something like that in your firm? It’s time to get rid of the useless assets once and for all.
One of the best ways to do so is to try to get a good price for them. Of course, you’ll find that assets which aren’t worth anything can be found on the market. If you discover something like this in your business, it’s best to just get rid of those assets for whatever they may be worth. Spare yourself the time, nerves, and long-term trouble and don’t look to make a profit from something you should just get rid of. After you sell all of these assets, you’ll experience an increase in cash balances. You also won’t have to account for deprecation and all the important ratios will significantly improve.
2. Negotiate for long payment cycles
Some vendors are very peculiar about their payments. You’ll often come across those who want to be paid quickly. Other times, though, you’ll notices that others don’t care if they are paid very quickly. These are the people you should focus on when you want to improve your liquidity. Your goal should be to get them to give you discounts.
This way, you get to hold on to your money for a longer period of time. On top of that, you’ll get to pay less than you otherwise you have, thus allowing you to have more cash and improving your liquidity.
3. Control overhead expenses
You need to have a clear idea of how much rent, marketing, professional fees, and other expenses are costing you. Once you examine and analyze what your business spends on things, you’ll realize that most of them are completely unnecessary. The best thing to do in this situation is to cut back on the expenses you deem unnecessary. By doing so, your short-term expenses will automatically go down, too.
The cash you retain in the business will also increase. Your current and quick ratios will start looking very impressive in no time thanks to these facts.
4. Switch to long-term debt
Instead of using short-term debt to finance your business, switch to long-term debt. The best debt collection agency will tell you that long-term debt has a lot of benefits for a small business. The main one is that you get lower interest rates and get to pay off the debt in smaller monthly instalments. On top of that, the principal is not due for repayment right away.
Removing short-term debt from your balance sheet will greatly improve your quick and current ratios, too. As well as that, it will help you save some of your liquidity in the near term. Let’s not forget that you’ll be able to put it to better use.
5. Submit your invoices early
You should always submit your invoices as quickly as possible to customers. The more you experience receivables increase and the faster you get money for your sales, the higher your current ratio will be. This means that you’ll always have enough cash. Prioritize aging accounts and work hard to ensure your customers pay.
You can also pay off some of your own liabilities as soon as it’s possible. Focus on the minor ones which don’t have a lot of monetary value. One thing that will help you more than anything else is having accounts receivables processes. If these processes are efficient, they’ll definitely help you move in the right direction.
As you can see, increasing your company’s liquidity isn’t impossible. It will take some time for the methods to take hold but you’ll be well on your way to more success and more cash. We’re confident that you’ll reach all of your business goals and increase your liquidity like never before. After all, these tips are tailored completely towards helping you and your business be the best you can be.