Liquid assets include instruments that yield cash directly or that can be converted quickly to cash. Liquid assets include cash on hand, supplies, and crops and livestock to be sold within the year. Adequate liquidity is essential to ensure a sufficient cash flow. Also, adequate liquid reserves can facilitate contingency plans for production disasters or poor market conditions. However, excess liquidity typically generates lower rates of return than fixed assets.
Timing is critical for ensuring adequate cash flows.
With proper planning of expenses, cash flow needs can be known with reasonable certainty. This allows you to plan marketing decisions in advance and to take advantage of attractive pricing opportunities. Improving liquidity to ensure adequate cash flows can include reducing family living expenditures, using resources efficiently, leasing assets, and using appropriate insurance programs. There is a lot more to risk management than buying insurance. But, insurance can complement many other risk management tools.