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Businesses maintain a proprietorship over a number of different properties, each having its own function and type. It is essential to keep tabs on these properties and manage them, as your business is most likely to have a massive range of needs. Each of these needs can be satisfied by a specific asset or property. An asset is primarily anything that a business considers to be of financial value or owns it. 

Now, these assets can be grouped into two different categories based on how easily they can be converted into cash. These groups are liquid assets and non-liquid assets. To set both of these groups apart, it is mandatory to know what they are, what they mean for a company, and how to use them to gain benefits. You must have answers to these questions if you are willing to get the best out of your owned properties. In order to get these answers, let us look in detail at the non-liquid assets and liquid assets definition.

What Are Liquid Assets?

Liquid assets can be easily and immediately converted into cash with little to no loss in their value. As they can be accessed quickly, they are central to maintaining some financial flexibility. Liquid assets are the ones that are available to manage unexpected expenses, take benefit of investment opportunities, and meet financial obligations. Let us look at a list of these assets:

List Of Liquid Assets 

Some of the popular examples of liquid assets are: 

1. Cash

Cash is the most liquid asset as it is readily available always.

2. Checking And Savings Accounts

With only a withdrawal or transfer, you can easily access your savings or checking accounts easily and quickly. 

3. Stocks And Bonds

If you were wondering, “Are stocks liquid assets or not?” then here is your answer: they are! You can sell them along with other securities on the open market with little delay. Even though there is some risk of losing your initial investment, but nonetheless, they are considered liquid assets. 

4. Money Market Funds

These funds have liquidity that is more like that of a savings account. However, it might offer slightly higher returns. 

5. Certificates Of Deposit (CDs)

Based on the terms, some certificates of deposit can be liquidated before they reach maturity. However, early withdrawal penalties might put some restrictions on their liquidity. 

What Are Non-Liquid Assets?

Far from liquid assets, non-liquid assets cannot be inexpensively and quickly converted into cash. Most of the time, the investors hold such assets for longer-term investment purposes, i.e., income generation or price appreciation. While such assets serve significant purposes in investing, they hinder flexibility in the shorter run. Selling non-liquid assets mostly needs significant effort and time, making them unsuited for covering rapid financial requirements. When such assets are converted into cash, there is also potential for significant upfront costs and even loss of initial investments. 

What Are The Examples Of Non-Liquid Assets?

Below, we have discussed some major examples of non-liquid assets: 

1. Real Estate

Mostly, it takes a few weeks to months to close a sale on a commercial or even residential property. Getting it ready for listing might also require you to make costly upgrades or repairs to the property. 

2. Retirement Accounts

Generally, you cannot access funds in an IRA, 401 (k), and accounts that are similar to it prior to getting to retirement age without paying any penalty. 

3. Private Equity

Proprietorship shares in private companies are usually tied up for extended time periods. Particular conditions might also be required in order to liquidate them. 

4. Collectibles

Turning jewelry, art, and related assets into cash might also take some time. Moreover, it also requires specialized auctions or markets. 

5. Business Interests

Proprietorship in any business is not conveniently sold, and coming up with a genuine buyer can also be a time-consuming process. 

Why Does Asset Liquidity Matter To Your Business?

Liquidity is crucial to any business due to a lot of different factors. Below, we have discussed some of the most significant reasons:

1. Keep A Check On Your Financial Health

Although cash is vital for any company to manage its financial responsibilities, a lot of it can hamper future investment opportunities. Keeping the liquidity in check can assist you in striking the perfect balance and keeping only the amount of cash you require. 

2. Helps Secure Loans And Other Funding

The ratios of liquidity are crucial to banks when they determine the ability of the business to repay the debts. 

3. Aids In Comparing And Gauging Performance

By keeping tabs on the liquidity of your competitors, you can also keep track of how you are performing in contrast to them. 

4. Helps Handle Operational Costs

The liquidity status of your business also determines how many resources you have available to manage your day-to-day operational costs. 

5. Helps Mitigate Emergencies

Liquidity status also aids you in keeping an eye on how many resources you have at your disposal in any case of emergency. 

To Sum It All Up!

Liquid money offers the security and flexibility required to tackle unexpected events as well as daily expenses. On the other hand, non-liquid assets provide the potential for long-term income and growth. The key is to balance non-liquid assets and liquid assets in your investment portfolio. By doing so, you will not only be able to manage your current finances, but you will also prepare for your financial future.