5 Tips for Maximizing Liquidity in Your New Business

When you’re just starting a business, you’ll need the freedom to seize opportunities that come your way and the security to absorb unexpected shocks if you hope to make it past the start-up stage. Having enough liquidity – that is, cash on hand – will be a key to both of these things.

If you’re not careful, you can easily start to think of the liquidity of your business as something out of your control. But finances are something you need to manage actively. Successful founders keep track of and manage their cash flow so that they can understand what’s working and what isn’t.

To run a successful business, you’ll need to learn how to do the same. This guide will give you practical and simple tips on how you can maximize liquidity in your business, giving you the financial flexibility needed to grow and maneuver successfully.

1. Speed up Collections

Many businesses get stuck because while they know they have money coming in, they don’t have enough cash at hand. So they’re always on the edge of disaster, waiting for the next invoice payment to come through and save them from their mess.

To ensure you don’t get stuck there, you should optimize your business operations so that invoices get paid as fast as possible, and you get access to the money in the shortest amount of time.

If you haven’t already, you should definitely set up a system that sends invoices immediately and automatically. No need to wait until the end of the month or collect a pile before you send them out – do it as soon as you know the amount you’re billing! If you’re working on a big contract over months, you might even want to divide it up and send invoices monthly if that’s something your client can agree to.

The payment methods offered should be as easy to use as possible, so that the customer is more likely to just pick it up and pay it as soon as they see it.

Another way that a business can speed up collections is by choosing a payment handler that will quickly process transactions and give you access to your funds. That’s something that cryptocurrency payments often offer, so you might want to offer this option to customers if it makes sense.

Payments through cryptocurrency are popular online, especially within certain sectors. Tech, for instance, or any sector where the customer might prioritize anonymity.

This review by 99Bitcoins covers the best Bitcoin casinos that offer instant deposits through popular cryptocurrencies. By choosing crypto to make payments, customers can also receive faster payouts than many traditional banking options offer, making the payment option a win for both the business and the customer.

Finally, actually give your customers and clients an incentive to pay you earlier. Consider introducing discounts for early payments and fees (communicated clearly) for late payments.

2. Try Cash-Flow Forecasting

Once you’ve done what you can to ensure you get your money as fast and efficiently as possible, the next step is working with what you have.

A great way of getting started is with cash-flow forecasting.

Cash flow forecasting is all about estimating both future incoming and outgoing funds. By working out a detailed cash flow forecast, you’ll really get a good understanding of what’s happening in the financial department of your business. You’ll be forced to correct errors in thinking, and you’ll see what truly leads to sales and income, and what drains your expenses the most. It’s one of the best ways to identify opportunities as well as shortfalls.

You could create a weekly forecast and update it every time you notice that something doesn’t look right. Once your forecast pretty much aligns with reality, you’ll be in a good place to start working with the information you have.

Cash-flow forecasting will force you to really get your financial situation in order, and you’ll make things a lot easier by centralizing things like receipts, bank balances, and payment schedules. That way, you’ll also identify problems or errors a lot faster.

In addition to forecasting, you can work out rules for different unexpected situations – delaying a certain payment that isn’t urgent if you’re low on funds, for instance, or investing extra cash somewhere it’ll grow.

3. Optimize Costs and Contrasts

If you’ve agreed to the first contract a supplier or partner proposed, it probably isn’t the ideal one for your business. For instance, you want to pay most of your invoices during times when you’re also getting paid. Try to work out payment schedules where you’re working with the business's natural cash flow rather than against it.

You’ll also want to cancel any recurring fixed costs that genuinely don’t add value to your business. After having done the cash-flow forecasting, you’ll be fully aware of your expenses – the next step is to audit them and check if they’re still needed and used.

4. Create Buffers Before You Need Them

Having buffers for times when things inevitably get tight is going to be much cheaper than scrambling for last-minute options. For instance, it’s better to open a credit line when you have the time to organize the best option than when you’re in a pinch and have to pick whatever you can start using the fastest.

You should have both instantly available cash that you can use on a moment's notice, and a reserve that you can get your hands on within a few days or weeks if needed. These can include assets you can liquidate if you need them or other investments you can take out in emergencies. The bottom line is that you want to have funds on hand both in cases of instant emergencies and longer periods of slow weeks or months.

5. Establish a System That Prioritizes Liquidity

To ensure liquidity over time, it’s best to form a system where liquidity is a priority. It’s easy to end up spending every cent you have on upgrades that feel necessary or investments that could be useful, but if you do so at the expense of liquidity, you might squander future opportunities that would have been more important.

A good system needs to track liquidity metrics and make it easy to identify early warning signals that show you something needs to be different. Wherever possible, automating can also help you manage finances without the emotional aspect that can sometimes cause you to make sudden investments or changes when none were needed.

Finally, communicate liquidity as a priority to your sales team, accountant, and whoever else is involved. By making liquidity a value and getting others on board, you won’t be fighting against the stream.

Concluding Remarks

Having a healthy cash flow and enough liquidity is, as we’ve discussed, crucial to give your business the freedom and resilience to conquer the initial, fragile growing phase.

The start of your business is the perfect time to take control of your finances before they get out of hand. If you focus on this early on, it will be much less work than if you try to sort things out later after years of tangled financial records.

While taking the first steps to ensure you have done all you can to maximize your cash flow, things will change as your business grows. You’ll have to come back and sort things out again later, so do yourself a favor and select a monthly date – say, the first Monday of every month – where you’ll ensure everything is on track as it should be and optimize anything that can be optimized.