Effects of Financial Difficulty
There are many ways in which a business can experience financial difficulty and when this happens it can be hard to fully understand what this means to the business and its employees.
This is why it’s important to look out for the warning signs and identify potential issues early
Potential Impact(s) for a Business in Financial Difficulty can include:
- Personal – A business being in financial difficulty can lead to increased stress and pressure for all employees, especially those owning/managing the business.
For those where the business is the sole source of income, the impacts can reach beyond the business and affect their personal income and spending ability.
Further guidance on how financial difficulty can affect individuals can be found here
- Late Payments to Creditors - If you don't have cash available within the business, you may be forced to take on additional loans or make late payments. This can lead to late payment fees on utilities or debts, thereby increasing the pressures on the business.
- Reduction in opportunities for growth - You may miss out on opportunities to acquire new stock, acquire assets or even hire new employees. Restricted growth can lead to low employee morale and creates a poor impression to business owners or shareholders.
- Reduced Competitiveness within an industry – Not being able to take advantage of economies of scale due to a lack in sufficient funds to purchase raw materials in bulk which can lead to a reduced profit margin.
- Impact on Credit Rating - Frequent defaults on loans or payments to creditors because of financial difficulty can impact on your company’s credit rating. This may reduce the availability of additional financial support and lead to increased interest and charges.