In the context of starting a business, what does liquidity refer to?

Liquidity in the context of starting a business refers to the capacity to convert assets into cash quickly. This concept is essential for business operations, as it determines how easily a company can meet its short-term financial obligations. A business with high liquidity can quickly access cash to cover immediate expenses, such as paying suppliers, employees, or other operational costs.

For example, cash itself is the most liquid asset, while real estate or equipment would have lower liquidity, as converting them to cash involves more time and potential costs. Understanding liquidity helps business owners gauge their financial health and make informed decisions about managing their resources effectively.