Any business, large or small, is vulnerable to financial distress. Financial difficulties can arise under any number of circumstances, including:

  • Internal financial struggles, such as:
    • declining cash balances and negative cash flow;
    • revenues that are sensitive to macroeconomic and microeconomic flux;
    • looming debt payments;
    • pending litigation, past judgments paid, anticipated judgments, and litigation costs;
    • high fixed costs or inability to timely reduce variable costs;
    • product obsolescence;
    • major customers defecting or reducing purchases; or
    • difficulty finding replacement lenders.
  • External financial pressures, such as:
    • supply chain disruptions;
    • raw material shortages;
    • rising transportation costs;
    • inflation that reduces spending power;
    • rising interest rates;
    • changes in spending habits and patterns;
    • import/export delays;
    • labor shortages;
    • natural disasters;
    • a global conflict; or
    • a pandemic.

When faced with financial distress or pressures, businesses need to learn to manage the crisis in a manner that best positions them for recovery. The following checklist contains suggested action items for business owners and management to help mitigate risk during a financial crisis.

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