LIQUIDITY

CASH IS THE KING

Accelerate your business with these expert tips on "Cash is the king. Analyse and discover this TIP!

"Cash is king" is a term we use for indicate that cash, liquidity, is the most important form of liquid asset that a company should have. In other words, it refers to the idea that a company must have enough cash to be able to operate efficiently and meet its financial obligations, to be able to pay all its expenses. A company that does not have enough cash may have difficulty paying its suppliers or employees, or may miss opportunities for growth and expansion. On the other hand, a company with sufficient cash can take advantage of opportunities, invest in growth and maintain financial stability. Ea cash is fundamental to the proper financial management of a company, as it enables the company to maintain its cash flow and meet its short-term financial obligations.

Start-ups may fail due to lack of liquidity despite profitability

It is possible for a company to be generating profits and yet have liquidity problems. This is because liquidity refers to the company's ability to convert its assets into cash and meet its short-term payment obligations. For example, a company may be generating a profit, but if it has a negative cash flow, i.e., it has a negative cash flow, If you are spending more than you are earning, you may have trouble meeting your short-term payment obligations, such as paying your suppliers or employees. In addition, a company may also have illiquid assets, such as property or equipment, which may be difficult to sell quickly for cash. Therefore, a company that is profitable but does not have good cash flow management may have liquidity problems and face the possibility of failure. It is important that new companies, pay attention to your cash flow and plan your expenses carefully to avoid liquidity problems that could jeopardise your survival.

Why is liquidity important in a new venture?

Liquidity is critical to the success of a new business as it refers to its ability to meet its short-term financial obligations. A business that does not have sufficient liquidity may have problems paying its suppliers, employees, and other expenses, which can lead to delays in production and affect the quality of the service or product it offers. In addition, Lack of liquidity may make it difficult to access additional financing in the future, as lenders and investors are interested in companies that have a healthy cash flow and can meet their financial obligations. On the other hand, a company that has good liquidity management can take advantage of opportunities to expand its business, acquire new assets or invest in new technologies. It can also respond quickly to any unforeseen events that may arise, such as an economic crisis or a decline in demand for its products or services. In short, liquidity is essential for a company to meet its short-term financial obligations, maintain the quality of its products and services, and have access to additional financing in the future.

Ideas for a new company to secure its liquidity

There are several ways in which a new company can secure its liquidity.

Here are some ideas:

1. Financial planning: A new business should have a sound financial plan that includes a projection of income and expenses for the next 18 months. This will help the business to maintain control over its finances and make informed decisions.
2. Cash flow management: Cash flow management is essential to ensure a company's liquidity. The company must have an effective cash flow monitoring process in place to anticipate potential liquidity problems.
3. Cost control: the company should be able to control its costs and expenses to ensure that they are aligned with its revenues and budget. This may include measures such as optimising processes and reducing unnecessary expenses.
4. Income diversification: revenue diversification is a way to reduce dependence on a single customer or product. The company should look for new revenue opportunities that complement its core business.
5. Negotiation of payment terms: the company can negotiate longer payment terms with its suppliers to improve its cash flow. And shorten the time it takes to collect from its customers by offering early payment discounts.
6. Obtaining funding: the company can seek external financing in the form of loans or investment to secure its liquidity. However, it is important to note that this can also increase debt and financial costs.

A new business can secure its liquidity through sound financial planning, effective cash flow management, tight cost control, revenue diversification, negotiating payment terms and obtaining financing if necessary.