Company’s financial difficulties and their prevention

The profitability of the business is a basic requirement for the company. Use basic financial calculations to determine your company's financial situation and profitability:

• 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
• the balance sheet shows what your company's assets and capital are at a certain point in time
• the weekly cash flow statement shows how much money your company receives and how much money goes out.

In particular, ensure that the cash flow remains mainly positive. Therefore, regular cash flow calculations should be made.

You can get help with understanding the figures and making calculations from your accountant, your regional business development company or  Enterprise AgencyOpens in a new window. and business mentorsOpens in a new window.. 

The reasons for payment difficulties may be external or internal.

External reasons are matters that the company can not influence, for example: 

• general economic downturn
• financial difficulties of an important customer 
• sudden illness.

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

• establishing a business without a comprehensive report on demand
• lack of competence in financial management
• problems organizing tasks
• the costs of the entrepreneur's own finances exceed the company's profits.

Your company may end up in a financial crisis if its payment difficulties persist for long enough. The clearest sign of a 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.

In the end, your company may become insolvent, which means that your company will not be able to pay its payments and debts. This may result in a payment default for your company.

Contact the Financial counselling for entrepreneurs when you want to assess your company's situation and options for improving the financial situation together with an expert.

You can also find a business mentorOpens in a new window. to help you solve business challenges.