What's Happening?
Liquidity is a measure of how easily a business can convert assets into cash at their fair market value. It is crucial for small businesses to maintain liquidity to meet operating expenses and financial
obligations. Liquid assets, such as cash equivalents and marketable securities, provide a financial cushion during economic downturns and unexpected expenses. Liquidity ratios, including the current ratio, quick ratio, and cash ratio, help assess a business's financial health and ability to cover short-term debts. Maintaining a liquid financial cushion enables businesses to continue operations and seize growth opportunities.
Why It's Important?
For small businesses, liquidity is essential to ensure financial stability and avoid debt during cash flow disruptions. A strong liquidity position allows businesses to handle unexpected expenses and continue operations during economic downturns. It also enables businesses to act on growth opportunities and maintain operational continuity. Understanding and tracking liquidity ratios help businesses plan effectively and manage financial risks, ensuring long-term viability and success.
