Liquidity is a measure of how quickly you can convert your company’s assets into cash without losing significant value. For business owners, it’s vital for staying nimble in the face of opportunities or challenges, providing flexibility to take on new ventures—and weather rough patches—without disrupting normal business operations.

Liquidity management isn’t just keeping excess cash or liquid assets on hand. While that may provide some peace of mind, idle liquidity comes with opportunity costs.

Maintaining strong liquidity helps position your midsize business to be agile and resilient in an unpredictable business environment. Here are five ways you can strategically put liquidity to work.

1. Invest in digital transformation

Using liquidity in digital transformation initiatives can be a smart way to drive long-term growth. By modernizing your technology infrastructure and key business processes, you can improve operational efficiency, reduce costs and create a foundation more scalable for expansion.

Digital investments can also help you enhance the customer experience and broaden your audience. The key is to prioritize digital initiatives that align with your overall growth strategy and have the potential to create a competitive advantage now or in the future. By investing cash strategically, you can position your business for success in an increasingly digital world.

2. Boost research and development

In a fast-paced business environment, innovation is essential. By investing in research and development (R&D), you can develop new products and services to capture market share and generate new revenue streams.

R&D can also refine your existing offerings. Good research typically isn’t cheap, but the findings may pay off in the long run. Maybe you study consumer behavior to better identify new sales opportunities within your target market or segment. Or you could invest in market research to better understand what others in your segment are doing and to find nearby categories where your company could grow. Consider what types of research can help you stay ahead of the competition and capture new markets.

3. Expand into new markets

Use your liquidity to enter new markets or customer segments, or strengthen your presence in existing ones. Diversifying your revenue streams can help reduce risk and improve liquidity even further by reducing reliance on any single area.

Expansion could involve investing in marketing, sales or distribution channels to reach new audiences. For example, you might use excess liquidity to upgrade your e-commerce capabilities, develop mobile apps that engage customers in new ways or establish relationships with other businesses. You can also expand geographically, opening new physical locations, hiring local teams or adapting products and services to regional preferences. As you expand, focus on the market opportunities that align with your overall strategy.

4. Acquire strategic assets

Mergers and acquisitions (M&A) can be a powerful tool for improving liquidity. Consider acquiring companies or assets that complement your existing business. Acquisitions can help you expand your products or services into new markets more quickly and tap into newer technology and top talent. Mergers often create synergies and cost savings that boost cash flow.

5. Strengthen your balance sheet

Paying off high-interest debt and improving cash flow is the most conventional liquidity management strategy, and it can free resources to be reinvested in the business. Additionally, look for ways to negotiate better terms with lenders and make operational improvements around inventory, payables and receivables to shorten the cash-conversion cycle.

You may want to consult with your bank to weigh the benefits of paying down debt versus reinvesting in your business.

Where to start—and how J.P. Morgan can help

Midsize businesses should have a laser focus on effectively managing liquidity, balancing the need to maintain enough cash reserves with the goal of maximizing returns on their assets.

To get started, focus on strategies that offer the most significant impact with the resources available. Flexibility and agility are key advantages that midsize businesses can leverage to outmaneuver larger competitors with their growth strategies.

Our middle market bankers work with midsize businesses every day to maximize their growth strategies with smart, tailored financial solutions. We help build their futures by offering insights and resources to effectively manage liquidity and drive long-term success. Talk to a banker today to see what’s possible for your business and take the next step toward optimizing your liquidity strategy.  

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