More money outgoing than incoming is always a worry for small business owners. No business is immune from a squeeze on working capital. Even the world’s biggest companies can suffer a cash shortage.
Liquidity measures the ability of your business to meet its short-term debt obligations. It usually involves a comparison between current assets (e.g. cash, accounts receivable) and current liabilities (e.g. rent, payroll). A ‘liquid’ asset can be converted into cash easily and quickly, usually within 90 days.
2. Available credit:
Credit can be used to finance growth, service debt or smooth out cash flow. A credit facility assures the business owner the company has ready access to money when needed. It often best to negotiate credit facilities when you least need them rather than when you are in panic.
Reduce your stress by setting up your credit facilities long before you encounter any cash flow challenges.
It’s amazing how costs can creep up on us. We may notice when consumer products increase in cost – such as gas and groceries – yet we may not notice when our own business expenses edge higher.
Check on your business costs by monitoring your gross profit ratio monthly.
There could be different reasons behind cost increases. Suppliers may be charging you more than expected. Shipping costs could be rising. You may be experiencing inventory shrinkage. Discounting could be hurting your income.
If you are uncomfortable reviewing those numbers contact us