Some basic ways to improve your business liquidity

The liquidity of an asset can be determined by taking into account the convenience, when converting it into cash at any given time. For example, an asset is highly liquid if it can be switched into cash quickly and easily, whereas an asset is less liquid if it takes lots of time and efforts to convert it into cash. Liquidity is an important factor, which is considered by investors whenever they are looking to invest. When we talk of business liquidity, it is the ability of some specific business to arrange cash for its daily requirements. A business can be profitable and all, but it can still fail to prosper if it lacks in liquidity department. Business liquidity is necessary to carry routine business operations, for example paying utility bills, wages and fulfilling other obligations.

Cash management and liquidity:
Business liquidity is directly related to cash management that includes budgeting, forecasting, ROI, cash collection & allocation, and the likes. Poor cash management can hurt business liquidity in many ways. Finance managers must consider liquidity risk every time they are looking to invest the capital in any venture; also they need to monitor cash flow closely.

Account Payable & Receivables:
When you’ve got lots of sale and purchase going on credit basis, you need to keep an eye on your account receivable, as well as account payable. The idea is to try and collect payments as soon as possible, while trying to delay payments which are due (while staying in ethical limits and not bullying your creditors). Encourage customers to pay in cash, remember cash is the king, even more so in times of recession.

Don’t stack useless assets:
Some businesses make the mistake of piling up assets that are not really useful at that particular time. These assets can be some seldom-used vehicles, vacant land, useless furniture, inventory or machinery that they don’t need at the moment. Sometimes renting or outsourcing can do the job, therefore you don’t really need to purchase all sorts of equipment every time the slightest need arises.

Choose the right investment:
When the company holds cash that exceeds its present expenditures, the excessive amount must be invested instead of holding (because of opportunity cost). However, the people responsible for choosing investment options must keep the liquidity factor in mind. Try to avoid investments that lack in liquidity, and keep an eye on future expenses as well.

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UK Wholesale

Different approaches for investment in Private Equity

Private equity is the capital of a company that is not for sale for general public at stock exchange. Equity securities are privately owned by the owner(S) of the company and they are not publicly traded. Investment in Private equity often involves huge amounts, which is why normally investment organizations like investment banks or mutual funds carry out these investments as an entity. Private equity investors often acquire a company, even if they don’t get the complete ownership of the company, they still hold enough shares to be actively involved in the management and company decisions. That’s the key thing about holding private equity, that you can be instrumental in the company decisions.

Leveraged Buyouts:
The most common investment made in private equity is a leveraged buyout, in which the investor acquires considerably large number of shares in some company, with an amount that is mostly borrowed from small investors. The investor in this case can be some private equity firm or even the manager of the company (who will purchase private equity to have power over the business that he/she has been managing so Far. It is also known as management buyouts. A rarity in the past, leveraged buyouts occurs quite often now days, as more and more institutional investors raise funds to purchase the majority of shares in some operating business. These investing companies then take drastic steps to improve the performance of the business after acquiring control over the business, however leveraged buyouts are not always successful and collapse as often as other businesses.

Distressed Securities:
Any kind of investment in a bankrupt company (or a company that is about to go bankrupt) is called distressed investment (so it’s not the investor who is making some distressed investment decision). These securities are often valued at a lower price than the original value. By nature, it is a risky investment; therefore it has to be handled by experienced investors and not the starters.

Investing as Venture Capital:
Venture Capitals are raised to support big business start ups, Venture Capital is a pool of cash that goes around looking for entrepreneurs with sound business ideas. Entrepreneurs have to rely on Venture Capital when the required amount for start up is too large to be raised by any other mean. Though it means less control for entrepreneurs, still it helps them getting started and executing the idea that has been haunting them for some time.

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Wholesalers

Valuing a business before investing into it

Business valuation is the assessment of economic value (Fair market value) for that business. You may need business valuation for a number of purposes, for example when you are looking to invest in some business, or planning to buy/sell some enterprise. Business valuation is not only handy when investing into some business, it also helps in taking better decisions when you are getting into partnership with someone or seeking loans for your business. Valuation is normally carried by professional appraisers, first because it is a complex task and needs professionals to do it; second an outside party will provide a more objective and neutral report. However, a better understanding of what contributes into the valuation of businesses will help you to progress into the right direction.

Just like any other financial report, the appraiser or valuator needs to disclose what approach has been applied for business valuation as all approaches have different pros and cons. Three approaches mostly used for business valuation are

i) Asset based approach
ii) Income based approach
iii) Market approach

Sometimes a combination of all of these approaches is used.

Asset Based Calculation:
Anything of economic value, that a business own is called an asset. As the name suggests, in asset based approach a business worth is calculated as the sum of its assets (both tangible and intangible) minus the total amount of its liabilities. These figures are picked from balance sheet. In liquidity based approach, assets are valued by the net amount they can generate in case their owner decides to sell them in the market.

Income (or earning) Based Approach:
Several methods are used in Income based approach, but the most appropriate method is "discounted cash flows". Unlike asset based approach where business is valued by the value of assets, this approach focuses on the future earning potentials. The drawback of this approach is that it depends mostly on the projected cash flows and expected returns, which are not guaranteed to be correct.

Market Value based Approach:
Market value based approach seeks to determine the business value by comparing it to some recent sales of similar type of businesses. There are no real calculations involved and this is merely an estimated value, which relies on the simple demand and supply rule for the markets.

Most experts recommend a combination of these approaches for a more realistic result. There's no single approach that will suit all types of businesses; stakeholders can choose an approach of their liking or leave it to the professional valuator to decide the most suitable one.

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Wholesale