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When a company suffers liquidity crisis, what are the best solutions/ decisions that should be taken consequently?

Due to the global economic crisis, and the fluctuation of cost, many companies could suffer lack of liquidity. What are the necessary actions that should be taken to save themselves or even overcome the crisis?

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تم إضافة السؤال من قبل Esraa Aly Ayoub Aly , MD Office manager , EMC
تاريخ النشر: 2023/06/06
Mohomed Niyas
من قبل Mohomed Niyas , hotel manager and digital marketing executive , Backpack Lanka private limited

When a company faces a liquidity crisis, taking immediate and decisive actions is crucial to address the situation and improve financial stability. Here are some necessary steps that can be taken to save the company and overcome the crisis:

  1. Assess the current financial situation: Conduct a thorough analysis of the company's financial position, including cash flow, assets, liabilities, and outstanding debts. This assessment will provide a clear understanding of the liquidity challenges and help identify the root causes.

  2. Develop a cash flow forecast: Create a detailed cash flow forecast that estimates the company's inflows and outflows of cash over a defined period. This will help in understanding future cash requirements and identifying potential shortfalls or surplus.

  3. Cut unnecessary expenses: Review the company's expenditures and identify areas where costs can be reduced or eliminated without significantly impacting operations. This may involve reducing non-essential expenses, renegotiating contracts with suppliers, and implementing cost-saving measures.

  4. Increase revenue generation: Explore ways to increase revenue to improve cash inflow. This could involve launching new marketing initiatives, expanding into new markets, revising pricing strategies, or diversifying product offerings.

  5. Prioritize and renegotiate debts: Prioritize debt payments based on their urgency and impact on the company's financial stability. Reach out to creditors and suppliers to negotiate new payment terms, extended credit periods, or potential discounts to alleviate immediate cash flow pressures.

  6. Improve working capital management: Optimize the management of working capital by carefully managing inventory levels, optimizing account receivables, and extending payment terms with creditors where feasible. This can help free up cash within the business.

  7. Explore financing options: Evaluate different financing options to infuse capital into the company. This may involve seeking additional investment from shareholders, exploring lines of credit or loans from financial institutions, or considering alternative funding sources such as factoring or invoice discounting.

  8. Communicate with stakeholders: Maintain open and transparent communication with stakeholders, including employees, investors, lenders, and suppliers. Clearly articulate the company's challenges, the steps being taken to address them, and the expected outcomes. This helps build trust and may lead to support or cooperation from key stakeholders.

  9. Seek professional advice: Consider engaging financial advisors or consultants with expertise in turnaround management or financial restructuring. They can provide objective guidance, offer strategic advice, and assist in implementing necessary changes to improve the company's financial position.

  10. Monitor and adjust: Continuously monitor the company's financial performance and progress towards addressing the liquidity crisis. Regularly reassess the effectiveness of implemented measures and make adjustments as needed to stay on track and adapt to changing circumstances.

It is important to note that each company's situation is unique, and the actions to be taken may vary based on specific circumstances. Seeking professional advice and guidance tailored to the company's needs is highly recommended when facing a liquidity crisis.

Nimesh  Mehta
من قبل Nimesh Mehta , Associate Accounts Manager , Narmada flooring corporation

Stock selling with special offer  with no dues n reduce unnecessary expenses 

Syed Haris sherazi
من قبل Syed Haris sherazi , domestic import export , own

There are several solution 

1.cut cost 

2.increase revenue 

3.sell assets 

4.raise revenue 

5.restructre debt 

6.seek professional advice

Amy Willson
من قبل Amy Willson , Freelance Translator , Freelance

To avoid a liquidity crisis in the first place, a company can take various precautionary measures:

  1. Monitoring accounts receivables. If you monitor your accounts receivable and manage them well, you reduce the risk of a cash shortage. If long invoicing periods often lead to cash shortages, these can easily be shortened so that a company receives its revenues more quickly and thus remains liquid. 
  2. Smarter shopping and storage usage. If you buy a lot of goods or materials, you pay large sums for them. This pre-financing means that less cash is available to cover running costs. Companies that need a lot of goods or materials should therefore review their purchasing and storage strategy. It may make more sense to order fewer goods and to order them at shorter intervals so that less money has to be financed in advance. 
  3. Building up cash reserves. In times when business is good, it is advisable to set aside part of your income as cash reserves. 
  4. Creating cash flow planning.

The Global Financial Crisis could also teach a lot. Furthermore, it`s just an addition to the answer by Mohomed Niyas, but hope will also help :)

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