How can I efficiently manage my current assets in the balance sheet?
March 22, 2022 | 50,00 EUR | answered by Laura Hohenwarter
Dear Tax Advisor,
My name is Guido Born and I run a medium-sized company in the automotive industry. In my balance sheet, I have noticed that my current assets make up a significant portion and I am wondering how I can efficiently manage it.
The current situation is as follows: My current assets mainly consist of inventory, receivables, and cash. However, I feel that the inventory levels are too high and the receivables are not being paid off quickly enough. This has resulted in cash flow problems, making it difficult for me to cover my operating expenses and make investments.
My concern is that the inefficient management of my current assets could have long-term negative effects on the financial health of my company. Therefore, I would like to know what measures I can take to efficiently manage my current assets in the balance sheet and improve my liquidity.
What options are there to optimize inventory levels and collect receivables faster? Are there methods to increase the turnover rate and thus enhance liquidity? What tools are available to me as a business owner to gain better control over my current assets and identify potential shortages early on?
I thank you in advance for your support and look forward to your expert advice.
Best regards,
Guido Born
Dear Mr. Born,
Thank you for your inquiry regarding the efficient management of your current assets in the balance sheet. As a tax advisor specializing in accounting and corporate finance, I can recommend some tips and measures to improve your liquidity and avoid possible bottlenecks.
First and foremost, it is important to optimize inventory levels. Regularly review your stock levels and analyze which products are selling quickly and which are moving slowly. Try to reduce the inventory of slow-moving products, for example by offering special promotions or discounts to increase sales. Close collaboration with suppliers can also help optimize inventory levels by agreeing on just-in-time deliveries.
For managing receivables, it is important to establish an efficient accounts receivable management system. Regularly review your outstanding receivables and set clear payment terms and conditions. Consistently follow up on overdue customers and consider taking legal action if necessary to avoid payment defaults. Regular monitoring of payment receipts is also important to identify delinquent customers early and respond accordingly.
To increase inventory turnover and improve liquidity, you can also utilize various instruments. For example, negotiate longer payment terms with suppliers to delay your payment outflows and preserve liquidity. Factoring or leasing may also be options to generate short-term liquidity by selling receivables or leasing assets.
To gain better control over your current assets and identify bottlenecks early on, I recommend establishing an effective controlling system. Regularly monitor key performance indicators such as inventory turnover, accounts receivable and accounts payable turnover periods, as well as liquidity ratios to identify potential bottlenecks in a timely manner and respond accordingly.
I hope these tips help you efficiently manage your current assets and improve your liquidity. I am available for further questions or a more detailed consultation.
Best regards,
Laura Hohenwarter
