Mitigating Financial Distress During Crisis

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.