In today’s capitalist society, we are all intimidated by money. You tend to admire the ones who are financially stronger because of their better and well-versed techniques, whereas you are bound to envy the ones who gain financial superiority over you through more poor work and performance than your own.
Making more money is one thing, managing and maintaining financial stability is another. And you may be allowed to like or dislike someone’s money-making process, but you cannot discredit businesses which can maintain financial stability over a stretch of time; because, eventually, financial stability is indispensable to running a successful business.
What is it that makes one business more financially stable than another? There may not be a standard scale to measure the financial stability of your business, but the answer to these questions can somehow be found in your company’s financial statements – that record and brief about the company’s profitability, equity, available cash, and other financial data which reflects the incoming and outgoing finances of a company.
Reading and analyzing these financial statements is an effective way of gauging the financial stability of your company. In fact, it should be common practice to go through your financial statements and make monthly- or at least biannual – financial statement reports.
Financial stability is not so hard to achieve for your own business, either. Many marketing companies have set viable examples of maintaining financial stability. However, why exactly is it so important? Here are some of the reasons why advertising companies feel financial stability is indispensable:
Come to think of it. Who would want to hire a tour operator or buy the services of a travel agency which is known to go down financially? Who would want to risk losing their money or, worse, being stranded in a foreign place in case the company shuts down while they are still on their travels?
Same goes for businesses making physical products. Almost all products nowadays are accompanied by claims of after-sales services and warranties. If a company is about to go bankrupt, it loses its credibility to stick around to live up to the promised post-sale services.
Financial stability ensures that your inventory is always sufficiently full and you keep on producing products or providing services at a consistent rate. This makes you and your product a reliable choice in the eyes of the consumer. The reliability, in turn, increases the value of the product/service and also makes sure that your customer base keeps coming back to you.
If a company has high esteem, fame and an excellent reputation in the marketplace, customers may have a preference for that company even if there are similar businesses, offering the same services or products for different prices. According to an American Research, there are ten main components of organizational reputation used in reputation measurement system, and Financial performance is one of them.
Builds Staff Trust
Stephen, in one of his book named as “The speed of trust and smart trust” states that the company-employee trust is not a soft social virtue. Instead, it’s genuinely a hard economic driver for the success of any organization.
According to a Research, trust between an employee and a company is the primary defining characteristic of the very best workplaces.
The ability to build trust has a profound effect on business results because trust affects two measurable outcomes, that is, Speed and Finance/cost.
A measure of trust and reliability is required not only in the company-customer relationship but also in the company-employees relationship.
Employees and their skills are a company’s most valuable asset. However, skilled employees would not agree to work and compromise their careers at a financially unstable company. In fact, financially unstable companies have to incentivize employees with higher wages.
Financially stable companies provide employees a sense of security and financial coverage. Both of these are very essential in encouraging employees to work tension-free and enhance their skill set. The financial security provided by financially stable businesses prevents anxiety and estrangement among employees who can seep into industrial action and hinder smooth production.
As a business, you will have to worry about investors and shareholders at one point or another. At this point, you will have to present your company as the least-risky investment and some financial stability will go a long way.
Financial stability increases the value of your shares by a good notch because it is a less risky investment for shareholders. This premium value lets you, as a company; earn more capital via stock offer than having to fund your company by borrowing money.
Being less risky makes your company a good bet not only for investors but banks as well. Financially stable companies are in a better position to seek and are at a higher chance of negotiating lower interest rates.
Investors, suppliers, and employees feel more comfortable in dealing with financially stable businesses, which allow for more expansion, profit, and greater stability.
Furthermore, financially strong management and branding create goodwill, that is an intangible component of value.
Financial stability is an essential element for keeping your business afloat. Financial performance is a top indicator of the likelihood that a company will cease or continue business operations.
Financial instability can quickly deteriorate towards bankruptcy. Regular monitoring of financial statements is required to ensure that the business stays the course.
And last, but definitely not least, financial stability indicates business alignment and make it as easy as possible to keep your customers as well as your employees happy.