Assessing The Mortality Risk Of A Business

A number of studies have examined the factors affecting the mortality risk of a business. One factor that has not been given sufficient attention is the area of cash flow and working capital management. In order to make informed business decisions, the business owner is dependent on cost estimates and other financial projections that provide a view of the business in its entirety. Regardless of whether a company is a start-up or an ongoing business, financial projections are crucial to successful management, providing an important test of feasibility for new firms and giving existing businesses a chance to spot problems and make corrections before it's too late. Ultimately, the true test of survivability of a business is its bottom line. However, in the interim, the degree of a company's liquidity provides a critical measure of its mortality risk. Even if a company is earning net income, it still takes cash to pay the bills. Properly managing the area of working capital and cash flows is essential to the survival and growth of a business. This is particularly true of smaller firms who experience different circumstances than large firms including fewer available resources.