Volatile financial markets creating uncertainty is a key feature of the current business landscape. Many businesses have seen a reduction in operations due to a decrease in demand – leading to liquidity risks, pressure on covenants, and increasing refinancing requirements.

A liquidity management strategy means your business has a plan for meeting its short-term and immediate cash obligations. For companies that are over-leveraged, a liquidity management strategy includes developing steps to reduce the gap between the cash available on hand and their debt obligations.

Use a 3-way Forecast to stress test the business

This is a prerequisite to a robust cash management system. It enables businesses to model the impact of a slow down and take early corrective action to ensure they preserve cash flow. It allows businesses to stress test scenarios before making critical decisions, such as investments, research and development or taking money out of the business.

Fund & preserve cash

Funding business assets will enable operations to continue without depleting cash reserves.

Use sweep accounts

This functionality is often available through your current financial institution. You can earn interest on any excess cash by automatically transferring the funds into a higher interest-bearing account when the funds aren’t needed and the sweeping or transferring them back to your operating account when you do need the cash.

Reduce your overhead costs

Assess your overhead expenses, like rent, and look for opportunities to decrease them. Lowering overhead will have a direct & positive impact on your profitability.

Reduce any unproductive assets

Time to get rid of any unused assets. Moving forward consider if any new assets, such as buildings, equipment and vehicles, will generate revenue.

Monitor accounts receivable

Staying on top of your accounts receivable will ensure that you are billing your clients on time and that you receive prompt payments.

Negotiate accounts payable

On the flip side see if you can negotiate more favourable and longer payment terms with your suppliers – this will give you access to funds for a longer period of time.

Minimise any owner drawings

Monitor the amount of money that’s being taken out of the business for non-business purposes such as owners drawings. Taking too much money out can put an unnecessary cash drain on the business.

Review profitability

Set up a reminder to review the profitability on your various products and services. Look for opportunities where you can increase the pricing structure or reduce the costs of providing the goods and services and take into consideration any changes in the market and/or industry you operate in.