Finding Advantage in Business Liquidity

Written by: Alerus Financial
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Not all businesses were affected by the economic turmoil of 2020-2021 equally. Some businesses will require careful nurturing to recover. Others saw a drop in expenses, an increase in business, or both, and may have more cash and liquid assets on hand than normal.

Businesses anywhere on that spectrum should consult with an advisor as they plan for what comes next, but for those businesses that find themselves with excess liquidity, there are some general things to consider. As always, your specific situation will call for a tailored solution, but you can start by:

Revisiting your mission and strategy before earmarking funds

Many companies engage in annual strategic planning, but with the rapid changes occurring in the economy, it may be worth revisiting this year’s plans with your advisor. If you’ve skipped some strategic planning during the upheaval, it’s the perfect time to get back on track. Revisiting your business plan, purpose, and strategies will help you focus on the best way to use funds. It can be exciting to consider new opportunities, but make sure any moves reflect priorities.

Considering expansion and what it would mean

Many firms have growth as a long-term goal, but what that looks like can vary by business, industry, and situation. Some possibilities: Geographic expansion into new territories; vertical expansion, like acquiring a supplier to add stability; increasing market share through the acquisition of competitors or added capacity; or investing in technology to improve efficiency or add capabilities. Each carries its own challenges and will require different funding tools, so plan carefully.

Looking at options to adjust your supply chain

A recurring theme for many manufacturing and retail businesses has been supply chain issues, which have proven challenging to untangle and restart. Earlier shifts to “just-in-time” supply chains to gain efficiency cost many businesses dearly. As a result, some are using excess liquidity to pre-purchase inventory, bring on new suppliers, or re-write their inventory assumptions to hold more goods on hand, which may even mean paying for space to store and manage it.

Exploring banking and investment moves to strengthen your position

Excess liquidity can be used in many ways. Before letting money burn the proverbial hole in your pocket, explore other uses that may improve your business’ balance sheet and medium- and long-term planning. These include retiring debt, adjusting or refinancing debt under more favorable terms, or finding investment vehicles that offer better returns, or tax advantages, and can be used to finance future strategic moves, making your plans even more secure.

Seeing how liquidity can help you invest in people

The labor market is in flux. Some changes may be short term (such as worker scarcity that may ease as job seekers come off the sidelines) and some may be long-term (such as the shift to work-from-home.) Excess liquidity can be used to help manage the people side of your business – maybe bonuses, increased salary or enhanced benefits programs, or new systems and workplaces to support new work styles.

The business advisors at Alerus are ready to help you think through the opportunities presented by liquidity. We offer a full range of banking, lending, investment and benefit services, and our experienced advisors can provide new ideas and fresh insights. Our goal is to help businesses develop plans to realize their full potential while managing the realities and uncertainties of today and tomorrow.

The information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Alerus does not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

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