Assessing your company’s financial situation

Profitability is one of the basic prerequisites for business operations. A profitable company is able to cover all its costs with its profits, and make some profit, too. However, the operating profit does not give a sufficient idea of whether the operation is actually profitable. 

Use basic financial calculations to determine your company’s financial situation and profitability:

• the weekly cash flow statement shows how much money your company receives and how much money goes out
• the balance sheet shows what your company’s assets and capital are at a certain point in time
• the income statement shows, for example, the income of the current financial year, expenses deducted in the accounts and the profit or loss for monitoring the prepaid tax.

In particular, ensure that the cash flow remains mainly positive. This is why you should make regular cash flow calculations.

Read more about basic financial calculations

Download calculation templates in Finnish from the City of Helsinki website (Excel)Opens in a new window.

In terms of performance and wellbeing, it is important that the work has been organised and responsibilities allocated appropriately. You should assess this together with your personnel because your company cannot achieve its goals if the personnel do not know what is happening and what is expected of them. This is particularly true in difficult times.

When you openly inform your employees about financial difficulties, they can help you cope with them. Openness prevents rumours and the spread of false information outside the company.

When considering solutions for improving the company’s financial situation, also factor in the number of personnel and tasks and whether there is room for improvement in the operating methods. At the same time, it is worth examining the division of labour from the perspective of your own coping. For example, could you give some of your own work to your employees to leave you more time to manage the company’s finances?

Payment difficulties often arise unexpectedly. They may occur even if your business is profitable. Fortunately, payment difficulties are often only temporary. In most cases, you can resolve them when you take action as soon as possible.

The reasons for payment difficulties may be external or internal.

External reasons are matters that the company cannot influence, for example 

• general economic downturn
• a momentary decline in the number of orders
• an important customer is unable to pay their bills to your company on time
• sudden illness of the entrepreneur.

Internal reasons are related to either the company or the entrepreneur, for example

• establishing a business without a comprehensive investigation on demand
• lack of competence in financial management
• problems with organising tasks
• the costs of the entrepreneur’s own finances exceed the company’s profits.

Remember that you and your potential business partners are responsible for your company’s finances and not anyone else, such as an accounting firm.

If financial difficulties become prolonged, your company may run into payment difficulties, face a financial crisis or even become insolvent.

Payment difficulties can be overcome when you take action as early as possible.

The clearest sign of a financial crisis is that your company’s revenue does not always cover the expenses, and your funds decrease. In a financial crisis,

• your company may not be able to manage its agreed liabilities in the same way as before
• it is increasingly difficult for your company to make its payments
• your company’s profitability may decline even more
• your company’s collateral may lose some of its value
• getting extra funding may become difficult
• your company may post a loss.

Insolvency means that your company will not be able to make its payments and pay its debts by their due date despite notices and demands for payment, and the situation is not temporary.

If a company is insolvent or threatened by insolvency, the management of the company has specific statutory obligations:

Liability for debts is also based on legislation. More detailed information is available on the Suomi.fi page Comparing company forms.