What's Happening?
Business liquidity involves maintaining a balance between liquid and illiquid assets to ensure operational continuity and seize opportunities. Liquid assets, such as cash and marketable securities, provide
flexibility to cover expected and unexpected costs, while illiquid assets, like real estate and equipment, require time to convert into cash. High liquidity demonstrates financial discipline and can lead to favorable loan terms from creditors. Businesses should aim to keep three to six months of operating expenses liquid to manage financial obligations and respond to market changes effectively.
Why It's Important?
Liquidity is crucial for businesses to maintain operational continuity and respond to unexpected costs without incurring debt. High liquidity allows businesses to capitalize on opportunities and demonstrate financial discipline, leading to better credibility with creditors. Maintaining a balance between liquid and illiquid assets ensures businesses can meet financial obligations and invest in growth. Understanding liquidity needs and managing assets effectively is essential for long-term viability and success.
