Liquidity refers to cash assets or assets that can be readily converted to cash. A small business often lacks sufficient liquidity, particularly when they are relatively young businesses or when they are farm/ranch operations. All too often, the business’s assets are tied up in things such as equipment, supplies, merchandise, or livestock that cannot easily be converted to cash. In the event of your death, however, your entire estate could be subject to federal gift and estate taxes which are calculated based on the value of your estate, without regard to whether your estate assets are liquid or non-liquid assets. If your business lacks sufficient liquid assets to pay any tax due, critical assets might have to be sold to pay the tax, putting the entire business at risk.