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Why Businesses Need To Focus More On Financial Stability

Why Businesses Need To Focus More On Financial Stability

When launching a business or growing an existing enterprise, finance and accurate financial management are essential. They are two elements that the success of a business is ultimately determined by, so the financial stability of any business is directly related to its future. This is something that goes beyond the ability to pay your staff’s wages or hitting your target sales, and understanding why financial stability is a priority can be the difference between failure and success. In this post, the finance specialists at Quid market loans will detail why business need to focus more on financial stability, and how doing so can boost an organisation.

Reputation

Financial stability can benefit your company’s image, both internally and externally. In turn, the reputation can increase the value of your brands and asset base, further improving your financial stability. Any business that looks as if it may go into bankruptcy could potentially lose sales through the inability to reassure customers that they will be around for the life of the products that sell. For example, if there is a rumour that a certain travel agency is on the verge of administration, customers are unlikely to book a holiday with them.

Value

Increased profits are the reward for risking capital. A company that can demonstrate financial stability represents less risk to shareholders and so the share price will rise to a higher multiple of profits than various other riskier investments. The premium value enables companies to secure more capital through stock, rather than having to raise funds through borrowing. This will enable them to maintain their financial stability, even when they start to expand their operations.

Relations In The Industry

In order to make employees feel secure in their jobs, employers need to be able to demonstrate financial stability. Stable organisations encourage a stable workforce, so they are able to retain their skills base and receive a higher return from training investments. Instability can cause insecurity in your staff, and this anxiety can turn into disruption, which can destabilise the company’s finances.

Suppliers

New businesses that have no financial history may find it difficult to get good payment terms for supplies. They could be faced with demands for advanced payment, or even cash on delivery. However, established and stable companies can usually pay for their supplies in arrears, sometimes getting credit terms that allow them an extended period of time to pay their bills. This emulates an interest-free loan for the company from their suppliers, and so enhances the overall profitability and stability.

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Financing Options

Financially stable companies are usually more attractive for banks than their unstable competition. If the investment community is impressed by a business’ stability, they may be able to avoid banks altogether and issue bonds instead. A financially stable company that seeks business loans from a bank may be able to negotiate lower interest rates, which can reduce costs and increase profits overall.

 

If your business has financial improvements to make, try to identify the key areas and keep these points in mind to reap the benefits of financial stability.

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