Key Business Factors Contributing to Financial Difficulty

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Many of the problems affecting business performance fall into at least one of the following categories and can lead to financial difficulty:

  • Cash Flow - The way a business manages cash in the short term is an essential part of ensuring long-term success. It’s important to operate tight cash management.
    Where there are difficulties in maintaining a balanced cash flow, in order to prevent more money going out than is coming in, identifying what can be retained in the business to give breathing space should be the first step and allow more time to assess the options available.
  • Profitability - It's important to understand the profitability of your business so you can identify what's working well and what's not, and make informed decisions. Short-term cash problems will often be caused by underlying profitability issues in the medium to longer term.
  • Management - It’s generally accepted that management strength is key to running a successful business. There are various ways of assessing people or management, including motivation, leadership, commitment and communication. Therefore if key personnel are unable to fulfil their role due to illness, accidents or change in personal circumstances, it could have an impact on the performance of the business. This is especially important in the case of sole traders and smaller limited companies.
  • External Factors - These may be known about early or totally unforeseen. Either way they have the potential to hugely impact your business and the trading environment in which you operate. Events such as; Natural disasters, pandemic, change in economic outlook or innovations in technology.

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