With the increasing hype in online promotion, digital marketing companies are on the rise. Numerous businesses are leaning towards digital marketing to promote their products and services. As such, profits are high for these companies.
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However, it also means that they must manage and invest their liquidity with caution. The stock market is highly volatile and requires expert knowledge before making any move. Here, we will have a comprehensive understanding of liquidity and how the stock market can aid in its investment.
Importance Of Liquidity In A Business
Before understanding the significance of liquidity for digital marketing companies, one must grasp the concept of liquidity.
Liquidity is the efficiency with which the business can convert an asset into cash. However, the conversion mustn’t affect the market price. Some of the assets subject to quick liquidity include cash, fine art, real estate, etc.
Numerous reasons can explain why liquidity is essential for a digital marketing company.
1. Need To Borrow
In case your business needs credit, liquidity plays a significant role in that. The importance of a liquidity ratio is that it can assure potential investors. It relays data that assures the creditor that you can pay back the amount within the suggested period. Taking a loan to improve the business is a common thing. However, to get approval, the company must show a favorable liquidity ratio.
2. To Divert Emergencies
Business emergencies often come unannounced. It is liquid assets that can help you out in that scenario. For that, you must have full knowledge of the assets that can give you quick cash. It is advisable to have a pre-plan for emergencies than to figure out everything at the last minute.
3. Meet The Present Needs
Liquidity is necessary for the smooth functioning of the company. It aids in fulfilling the current needs of the business while allowing it to apply for future loans and credits.
How To Improve Or Increase Liquidity?
There are numerous ways you can improve the liquidity of your digital marketing company. Take a look!
- Reduction in overhead costs: Firstly, you must analyze the total overhead costs. After that, you must seek ways to reduce it as it affects profitability. Some of the overhead expenses include indirect labor, rent, etc.
- Opt for optimum accounts management: It is vital to handle the accounts receivable and accounts payables with efficiency. Ensure that the accounts receivables are being promptly paid by clients. And in the case of accounts payable, try to negotiate contract terms to keep the money for an extended period of time. Also, you could implement accounts payable automation to keep any human error at bay and improve the overall payment process.
- Go for sweep accounts: The best part about a sweep account is the ease with which you can get back the cash into the operating account. With sweep accounts, you can transfer the funds that are not of immediate requirement to an interest-providing account. That way, you can get the cash you need at any time while also obtaining the interests.
- Diversify the funding: It is inadvisable to get funding from a single source. Instead, opt for multiple platforms such as bank credit, venture capital programs, share funds, etc. Moreover, try to always maintain a cash reserve for unforeseeable events.
- Get rid of unproductive assets: If your company has assets that are an overall burden on the finances, it is time to get rid of them. Keep in mind to only keep assets that can offer generous revenues.
Invest Liquidity: Try short floating!
Liquidity is one of the cornerstones of a successful business organization. Now, there are different ways that you can invest in liquidity. One of the most popular approaches is the short floating method.
However, before you know the benefits that short floating can bring to the business, it is vital to understand the term.
What Is Short Floating?
In technical jargon, short floating is the “n” shares that short sellers can borrow from the float. Now, this can seem like a puzzle to beginners. Here, you can understand the short float meaning. First of all, short selling is the investment technique of borrowing shares and then selling them. After some time, you must buy it back and then return it. In this method, the investor risks his money because the price will go down.
The float of stock means unrestricted shares or available to the general public. The size of the float has the power to influence its volatility.
Short float is the percentage of short shares in the market compared to all the shares in the float or available. You may have heard another popular term used- short interest.
Knowing about the short float of stock means that you have information on the number of investors who think the price will go down. Generally, if the short float is more than 40%, then it is said that the stock has a considerable short interest.
What Information Can You Get From A Short Float?
There are various data that you can gain from the short float. These include:
- A good idea on the sentiment surrounding the stock
- The number of short shares
- The short float percentage offers information on the numbers of short shares.
Understanding the short float can offer a unique perspective to potential investors. Now, you can act on the information available rather than simply following the herd. However, it is advisable to go for a low short float rather than a higher one.
In most cases, a high short float results in short squeezes. That can create a bearish market and risk your investment significantly.
Conclusion
In today’s world, digital marketing is the need of the hour. Businesses need to have a digital presence to expand their brand visibility. That is precisely why digital marketing companies are successful ventures.
However, knowing how to improve and invest liquidity is of critical importance. After all, the only way to branch out is to understand the financial aspects.
About Author
Rashi Jaitly is a Content Writer & Manager at Digital Gratified – A Digital Marketing & Web Development Company helping international businesses grow their business.