Kai Adams knows the importance of keeping liquid, and not just because he brews beer for a living.
“You need easy access to cash because the beer business is capital-intensive, especially when you’re growing and when times are tough,” says Adams, cofounder of Sebago Brewing Company, a leading brewpub and brewery in Maine. “And then you also need it just for your day-to-day operations.”
Every business needs liquidity—that is, ready access to cash—to pay bills and make payroll, and even growing businesses can experience cash crunches in that nail-biting gap between when expenses go out and revenues come in. Failure to manage your liquidity during that period can cause your business to take on too much debt or even go bankrupt.
“Liquidity can make an incremental or a huge difference, depending on the situation,” says Tom Gregory, head of treasury management sales at TD Bank. “Think about the payroll withholding taxes that employers have to remit to the state and local government every payroll period. If you’re even one day late on those payments, you’re assessed fines and penalties. They can be very large and make a huge difference financially for companies.”
You can improve your liquidity position (others call it working capital) through borrowing and by changing how you manage your assets and accounts. Here are three tips, which include additional insights from Adams on how he grew his business—and then protected it during the pandemic—by working with TD Bank.
Tip #1
Recognize The Cash Value Of Assets
Whether it’s surplus inventory, real estate or equipment, any asset that’s not helping to generate revenue is a burden on your business. Consider converting it to cash, which you can use for daily expenses or to reinvest into more profitable uses.
Lease (Rather Than Buy) Your Business Equipment
Equipment leasing lets you avoid spending a lot of cash on a down payment or purchase before you gain any revenues from use of the equipment. You may be able to spread out virtually all ownership costs—including maintenance, repairs and upgrades—across a series of fixed payments.
Assess Your Real Estate Holdings
Reducing overhead costs is a great way to maintain liquidity. At the beginning of Covid-19 shutdowns, for example, Adams’ team cut expenses and canceled all nonessential recurring payments. The pandemic also demonstrated that many people can work from home at least part of the time, notes Gregory. Selling or vacating office space your employees are no longer using will reduce or eliminate monthly expenses including rent, utilities and office supplies.