Top 3 warning signs your organization is financially unstable

Time is money and money is the life line of business. Believe it or not, almost all the decisions taken by the executives are in line with the financial condition of the organization. Whether it is a decision to expand the business, whether it is a decision to sell a part of a business to a different organization, whether there would be a raise in the salary or whether they want to hire new employees, all of these decisions are taken keeping in mind the finances of the organization. The concept is very simple; cash is the king. The more valuation an organization has the better it performs in terms of financial management, employee engagement and client satisfaction. Anything and everything that one sees around them in a workplace is a decision made by the leaders keeping the finances in mind and ensuring the owners do not go bankrupt.

This articles briefly describes the top three areas that executives invest their time when taking crucial business decisions when faced with adverse conditions such as the current prevalent pandemic situation where almost every sector is severely impacted with the airlines hit the worst. A basic knowledge of these areas is crucial so that you as an employee can be prepared when you see an economic crisis coming your way.

Warning Sign#1: Optimizing the Labor Costs

What business exactly mean when they say they are trying to optimize their labor costs can be either layoffs at various level of the organization or cutting the allowances that an employee is entitled or can be no promotions or hikes in the salary or most importantly they can also mean all of these together. A big chunk of the overall financial capability of any business is the labor costs or the salary of its employees. There is no business in the world that runs without paying its employees unless they label themselves as non-profit organizations. When a business hires a new employee, it adds to the costs of the organization and hence the organization would look for more and more contribution of the employee to the organization growth in whatever capacity they can. This aspect is called the return on investment. One can look it as an investment the business makes on the employee and in return it expects the employee to deliver their services to their clients which in turn increases the revenue of the business. Under economic crisis, this is usually the first place where business leaders take decisions and cut the head count from their organization in order to compensate for the losses.

Warning Sign#2: A staggered Business expansion

If all of a sudden your organization which happened to be in the limelight for all the right reasons have not made it even to the daily news, that means there is something wrong in the finances. This might not be directly visible to us as employees but this is one of the key aspects of finance control. There is no business in the world which is happy with their current status in the business world. Businesses strive to grow in terms of revenues, net worth, expertise and margins. This is achieved by expanding into different markets, geographies and different technologies. All of these need substantial amount of investment in terms of money which is known as the investment capital. This is one of the key decisions that business stakeholders take keeping in mind the finances of the organization. Less investment capital means no expansion which can turn out to be a risky endeavor for the Business and ultimately a staggered business expansion.

Warning Sign#3: Cost Cutting

This is a coping mechanism which an organization follows when they find themselves strapped to a financial crisis. It is often seen that when business run on low cash and marginal revenues, the operational costs are often cut such as a reduction in the allowances, more stringent policies in place, a reduction on the bonuses and substantial cost cutting on other operational procedures. When you see areas which might have been lucrative to start with are no more available in your day to day work life, it is a sign of loss for an organization which in turn can indicate financial loses in the business.

These are the key areas in Business which are impacted directly by finances. However, they give an overall knowledge of the whole scenario. If you are eager to know more on the financial aspects which impact business decision making process, check out Impact of Finance on Business Decisions.