It is important for your business to have good liquidity. In this article we’ll take a closer look at how you can improve the liquidity of your business.
Liquidity is important for your business as it says something about the business’s financial health. If your business has good liquidity it means it is able to pay bills and unforeseen expenses promptly.
Let’s look at some concrete tips on what you can do to improve the liquidity.
Read also: The ultimate guide to liquidity and cash flow.
Send your invoices immediately
The most important factor to have good liquidity is earning money. If you don’t have a cash register, you need to send out invoices to get paid.
Make it a habit to send invoices immediately after you have completed your service or when you sell your product.
Send payment reminders
If your customers don’t pay on time, make sure to send out proactive payment reminders. Also explore the possibility of securing a credit line.
Make a budget
Budgets are a great tool when it comes to planning your finances and your company’s cash flow. You should have a liquidity budget and a result budget.
A liquidity budget is a planning budget, where you can estimate how much money you will earn and how much you will spend. It is smart to have a surplus in case of unexpected costs.
Liquidity reserves = estimated income – estimated costs
A result budget shows your costs and your income. In this budget you will see if your business earns money and it will give you an idea on how much tax you need to pay.
Result = income – costs
Cut costs
Get a good overview of your expenses. Is there anything in your budget you can cut out or where you can choose a cheaper solution? This can save you some money. You could, for instance, switch to a free invoicing software such as Conta. You can sign up and start sending invoices for free today.
Have good supplier relationships
Make sure you have a good relationship with your suppliers. This can help you if you need to negotiate extended payment terms or increase credit limits. A strong supplier relationship can contribute significantly to your business cash flow management and improve the liquidity.
Optimize inventory management
Make sure you don’t have a large inventory that is tying up capital. If you map out your inventory needs and you may be able to cut out unnecessary inventory and ensure that your resources are allocated wisely.
