Keeping It Liquid: 3 Ways To Ease Liquidity Quickly

The savvy entrepreneur knows that even the best businesses can fail without good liquidity.

Liquid cash is the lifeblood of your business. Just as our bodies can’t function without our bloodstream delivering much-needed oxygen and nutrients to our organs to keep us alive, your business needs a flow of cash to survive.

Cash flow helps to keep our shelves stocked with inventory, our suppliers paid up, our utilities running and the business functioning as it should. But let’s be realistic.

In the world of modern business, any number of actions can disrupt the flow of cash through a business. For example, has your business experienced late payments from debtors, delayed stock delivery or a temporary lapse in essential services like utilities or telecoms? These commonplace occurrences can, in many organisations, create clotting of liquid assets around a business, causing it to haemorrhage money in, say, interest payments on loans.

To keep the medical analogy going just a little longer when something is restricting blood flow around the body, corrective action is needed immediately to save the patient from serious injury or death. Likewise, in business, delaying remedial and decisive action will result in a longer recovery period or leaving it too late may be the end of the business.

There are many ways in which you can stimulate cash flow including:

• Follow up late payment of invoices
• Cut unessential expenses
• Freeze paid advertising

Other initiatives including securing more funding and sales.

Thow a sale

Is a whole lot of your cash tied up in solid assets like stock? Get on social media and announce a grand scale.

Slash down prices on all of your best sellers, and customers will come pouring through the doors. Okay, so you might lose a little of your margin upfront, but this will likely be a small price to pay to resume normal service and return your business to a fully operational state. Plus, your bargain bonanza may well draw a new stream of clientele who will keep you in mind in future.

Investment

Startup businesses often rely on the owner’s home loan to finance startup investment for at least the early phases of operation until the profits prove the business a secure asset.

Home Loan

Lenders understand the security of property for a home loan. The worst that can happen is the loan is called in and the home sold to recover the debt. Whereas startup businesses are unreliable, and the failure statistics are not helpful. For example, four out of five startups fail within the first 18 months. Therefore lenders are not keen on giving out business loans to unproven startups.

Mortgages also usually have much lower interest rates than business loans, so they are preferred by owners who need to provide the startup cash.

If you take this action to keep your business liquid you wouldn’t be the first entrepreneur to bet the farm or house on your enterprise. The key is to plan ahead and have an exit plan where business debts to you are repaid quickly.

Silent investor

Another option to securing investment to keep your business afloat is to offer shares to a silent investor. You will retain control of the business and how it operates, with your investor happy with his return on his investment, i.e. the interest and or dividends paid for the loan.

Angel investor

An angel investor may be the way forward for your business to maintain its liquidity. An angel investor can also be a valuable asset to the management team in exchange for a share in the business with no debt to be repaid. Angel investors know a thing or two about growing successful companies, so giving up a small share in your business, i.e. 10% or less, maybe a worthwhile investment, especially when their input improves systems, processes and sales.

Bridging finance

You should go into this with some trepidation. While borrowing may be appealing when you’re in a bind, bear in mind that the faster you can get your hands on liquid cash, the more you can be expected to pay in interest.

In other words, while you may experience a bump in liquidity, high-interest repayments could put a serious dent in your long term profits. Your best bet is to go for a finance broker and do the math to ascertain whether the repayments on any bridging loans would place a serious squeeze on your profits.