The liquidity is crucial for your company’s ability to survive. If you lack money, your company can go bankrupt. Here are some tips on what to do to secure yourself.
Liquidity means ability to pay.
Even if your business is going well, you can experience not having enough money in your bank to pay your bills.
In this case, the iquidity is too bad, and you risk your business going bankrupt.
One of the challenges for fresh self-employed is to keep the costs down once the money rolls in.
Video on improving the liquidity
Here is a recording of a livestream about improving the liquidity:
Here are the tips on improving the liquidity that I talk about in the video:
1. Your liquidity improves if you send out invoices quicker
Do you have control over your invoicing routines? Get your invoices out to the clients as soon as possible, and reduce the credit pereiod (amount of days until due date) wherever possible.
Remember that during the period between you delivering the goods/service, and the due date, you are lending money to your client for free. Make that period as short as possible.
Note that you are also imposed to send an invoice for a delivered good or service within a month after delivering.
But there is no reason to wait that long.
2. Increase the sales activity
Sales are an important part of running a small business, whether it’s a sole proprietorship, a private limited liability companny or a different form of organisation.
Put off certain times for following up existing and potential clients. Are you able to increase the sales now?
Do you sell VAT-free services? Note that you can invoice these types of services in advance.
3. Improve your liquidity by selling belongings that you don’t need
Do you have assets in your company that are collecting dust? Sell them!
Don’t hesitate with this if you need to imporve your liquidity.
4. Lease instead of owning
Can you lease (rent) inventory and equipment instead of owning? This ties less capital, and you will get monthly costs instead of taking a big chunk of your bank.
People often associate leasing with cars, but most fixed assets can be funded by leasing.
5. Change the advance tax and improve your liquidity
Changing the advance tax as required is especially important for you if you are running a sole proprietorship.
The advance tax is paid four times a year based on expected level of income.
Therefore, if you are self-employed and you get a lower income than expected, you should change the advance tax.
Otherwise, this is a big liquidity trap: You’re paying more tax than you need to, and are left with less money left to pay your bills.
You can also search on The Norwegian Tax Administration for more information on this.
If you are running a limited company, you can also reduce the advance tax, but the rules are different here:
- The advance tax is paid in two terms.
- The tax applies to the previous year (and not the current year, like for sole proprietorships).
- You can apply for reducing the advance tax until August 30th.
- You will not get a new invoice, you need to change the amount yourself if the advance tax gets reduced.