6 Tips for Keeping Your Small Business Operations Liquid

Liquidity—that is, the ease with which one can cover immediate expenses using liquid assets like cash—is essential for small businesses of all sizes and industries. It is key to financial flexibility and stability, as access to easily convertible assets helps entrepreneurs and their staff respond promptly to unexpected expenses.

A small business that’s liquid is better poised to seize lucrative opportunities, weather economic downturns, and invest in growth initiatives at favorable times. The ability to do all these will reduce a business’s risk of financial strain or insolvency and position it for long-term success in a business environment where entrepreneurs can always expect to get more competitive over time.

Your effort to prioritize your liquidity management will empower a small business like yours to sustain its operational continuity and build its resilience for inevitably tougher times. As a small business owner, here are some effective strategies that you can implement to retain your access to easily convertible assets:

1) Monitor Cash Flow

First, you should have a good handle on your cash flow to get a view of the overall financial health of your business and ensure that you always have enough funds to cover your expenses and obligations. Regularly tracking your incoming and outgoing cash will enable you to identify potential cash shortages or surpluses and take proactive measures to address them. Stay on top of your cash flow statements so that you can use these to analyze trends, forecast your future cash needs, and make the best calls about your company’s spending and investments.

It’s also recommended that you invest in cloud-based accounting software to streamline your cash flow monitoring process and get access to real-time insights and alerts for better financial management. For example, if you notice a pattern of late payments from clients, notifications from your chosen solution can help you follow them up promptly, thus expediting your collections and improving your cash flow.

2) Consider Some New Financing Options

Now’s also a good time to explore various funding programs that can provide you with additional liquidity and support your small business’s growth. Evaluate different financing alternatives, such as loans for businesses and invoice factoring, before you need them. For the former, businesses in the Philippines are well-served by loan programs like Maya Flexi Loan.

Make sure to compare interest rates, terms, and fees from multiple lenders, too. This way, should you require additional funding, you can immediately determine which financing option best matches your business’s needs, objectives, and current financial situation.

If it’s appropriate, you can also consider alternative financing options like crowdfunding or peer-to-peer lending platforms to diversify your funding sources and mitigate risk. As long as you commit to being responsible about your debt repayment, you can effectively leverage the financing options available to you to get access to additional capital, ably support your day-to-day operations, and maintain liquidity during periods of uncertainty.

3) Optimize Your Accounts Receivable

If you intend to accelerate your cash inflows and reduce the risk of late or delinquent payments from customers, then your best move would be to optimize your accounts receivable process. Do this by establishing clear payment terms and policies upfront, including due dates and late fees.

It’s also a common strategy for small businesses to offer discounts or incentives to clients who pay invoices promptly or in advance. Incentivizing prompt payment in this manner can help encourage your customers to settle their invoices in a timely manner.

At some point, you should also invest in technology for streamlining your invoicing and payment collection process. Integrate payment gateways into your invoicing system, for instance, to allow customers to pay their invoices conveniently and securely online. This will expedite the collection process for your business and will definitely play a role in improving your cash flow.

4) Exercise Greater Control Over Your Expenses

One of the most straightforward ways to maximize your available cash flow is to be more hands-on about your business spending. Begin this process by conducting a thorough review of your regular business expenses. This will allow you to identify areas where costs can be reduced or optimized. It’s also a smart way to look for opportunities to eliminate unnecessary expenditures, renegotiate contracts, or switch to more cost-effective alternatives without sacrificing quality.

For example, you can consider outsourcing non-core functions, like accounting or marketing, to specialized service providers. This move could help reduce overhead costs and improve your business’s operational efficiency.

You can also identify cost-saving opportunities by implementing cost-effective expense-tracking systems or software to monitor your spending in real time. Better control of your expenses and a lean approach to business operations will contribute towards preserving your cash reserves and enhancing liquidity, which can then position your company for long-term financial stability.

5) Build Your Cash Reserves

Any small business should have a cash reserve to tide them through unforeseen emergencies, economic downturns, or cash flow disruptions. Build your own fund for rainy days by establishing a target reserve amount based on your business’s operating expenses and risk tolerance. The goal is to have sufficient funds to cover short-term financial obligations and unexpected challenges.

Next, allocate a portion of your profits to a dedicated cash reserve account. This should be separate from your operating funds so that you can avoid the temptation of using the reserve funds for non-essential purposes. Consider automating regular contributions to your cash reserve account as well to ensure consistency and discipline in building up your savings.

6) Diversify Your Revenue Streams

It’s dangerous to rely on a single source of income, as this will make your small business more vulnerable to market fluctuations and changes in consumer behavior. Avoid such a situation by diversifying your revenue streams as early as you can.

Begin by identifying opportunities to expand your product or service offerings. Then, target new customer segments or explore additional sales channels to generate alternative revenue streams. For example, you could introduce complementary products or services that cater to existing customer needs or explore partnerships with other businesses to reach new markets.

It’s also possible to use digital platforms and e-commerce channels to broaden your existing customer reach and to diversify your sales channels beyond traditional brick-and-mortar operations. These additional revenue streams can help you create a more resilient business model, where you can offset potential revenue losses in one area with gains in others.

These tips should help you improve the liquidity position of your small business and increase its capability to withstand tough times for your industry. Commit to being proactive about managing your small business’s finances and further strengthening its financial resilience every coming year.