Businesses often need liquidity to stay viable. Essentially, business liquidity in its usual context refers to the efficiency that a security or asset can be converted into ready cash without affecting its market price. Cash, of course, is the most liquid of assets but there are so many businesses out there that have their cash locked up in assets and equipment. So, how can you improve your business liquidity? We look at how you can free up some liquidity here.
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Sale-Leaseback Transaction
This transaction has often been undertaken to help business liquidity. However, you have to make sure you undertake it in the right way, and at the right time. A sale-leaseback transaction can help your business improve liquidity. This is a transaction where you sell an asset for cash and then lease it back from the same owner. You can also expense the new lease payments for tax purposes. You won’t lose control of the asset you use or occupy (this can be a building or machinery) while receiving a boost in capital, and you’ll avoid typical costs usually incurred when debt financing. You need to pay attention to the contractual obligations and make sure they’re beneficial to you and your business before entering into a sale-leaseback transaction.
Seek Business Investment
One of the other ways to improve business liquidity is to offer up investment opportunities. If your business is doing well, you could attract investment. At the same time, if your business has good potential it can still pull in interested parties. Usually, you trade business equity for cash. This cash increases liquidity. You need to be careful when offering up portions of your business for investment. Make sure it’s fairly evaluated and that you’re getting a proper payment. You also need to make sure the investor has reasonable expectations in regards to how you think your business might grow. If you’re both not on the same page there could be problems down the line.
Refine Accountancy
If you look after your books and make sure you stay on top of your accountancy your business will have a far higher chance of retaining liquidity. You’ll be able to properly forecast income and expenditure, along with keeping on top of your lease arrangements where necessary. You’ll be able to improve liquidity simply by being able to efficiently forecast. Some find bookkeeping hard, in which case you should look into accountancy software to help you out. You might even want to hire an accountant. Others are better with numbers and can pretty much do their own books so long as things don’t get too complex. If they do, you can look into specific software like lease accounting software to help you stay in line with the new ASC 842 standard.
Conclusion
Improving business liquidity isn’t always easy, especially if you’re a newer business with funds and assets stretched. However, as you grow and your business develops you’ll find more opportunities to improve your liquidity. It’ll give you peace and mind and the ability to properly run your business.
