Financial liquidity in the company – the effects of loss and methods of recovery
In previous posts of the financial liquidity in the company, we wrote about liquidity ratios and methods for determining it. This time we will focus on the effects of losing financial liquidity and look for ways to regain it and restore the company's financial balance.
Why financial liquidity is the base for everything?
We have already described what financial liquidity is and why maintaining it is strategic for a company. By maintaining financial liquidity, the company has a chance to function at all. Without financial liquidity, it is impossible to conclude new contracts or investments, moreover it is also difficult to cover current liabilities. Financial liquidity is necessary for companies operating globally, as well as for small enterprises and even sole proprietorships. It is blood circulation system transporting oxygen for the company.
You can read about what liquidity is and how to determine it in the post below:
Loss of financial liquidity and consequences of it
Loss of financial liquidity means for the company a short-term lack of ability to cover current liabilities in a timely manner. The situation in which there is a short-term loss of financial capacity should not be underestimated. It may lead to a situation in which the enterprise becomes completely insolvent and there is a shortage of funds to cover expenses irrespective of their due date. This, in turn, can even lead to bankruptcy.
Paradoxically, when there is too much liquidity in the company that is not used, it may in the long run mean improper management and suboptimal use of capital. This, in turn, can lead to a decrease in the profitability of the company's assets.
We wrote about financial liquidity ratios here:
Ways of regaining financial liquidity
Before we implement a strategy of regaining financial liquidity in an enterprise, we must first of all check why the liquidity was lost. An expert audit of the company may be helpful. Thanks to it, we will not only learn about areas that are managed incorrectly, but also those that bring losses. In addition, we will receive restructuring recommendations where it is required.
Thanks to thorough business and financial analysis, we will be able to restore the proper functioning of individual departments and restore financial stability, while avoiding bankruptcy or hostile merger risk.
Why should you consider outsourcing of such a task? Specialists dealing with professional audits of companies are primarily objective and experienced. Their main and only task is to indicate such a path of action, thanks to which your company will start to generate profits again.
If your company has lost financial liquidity or there is a risk that it may lose financial capacity, you need tips on how to restore financial stability in your company or you want to increase the profitability of resources, please contact us.