Business and help companies
Liquidity is known as a very important role in running a business and help companies to survival for a long period. It measures that whether the company is generating sufficient cash and it is a very common cause of business failure. Consider about the liquidity crisis that the ABC PLC faces, to solve this problem, this essay will examine some possible solutions and analyse the effects those may happen after implementing them.
The purpose of solving the liquidity crisis is to collect cash as soon as possible in order to ensure that cash is available to deal with other cash requirements, in other words, cash is needed to run in the liquidity cycle quickly.
In this case, the first considerable way is to reduce current price and sell more products. Discount is always an impactful swash to consumers. So there will be a dramatic increase in the quantity of demand. More consumers buy products, more profits the company makes. As a result, there will be more immediate cash to pay other requirements. However, there will be less stock in the storage, after a long period, because of liquidity problem, the company do not have enough money to produce more products, then when the company receives new orders, they may not able to take them.
Thus, very few stocks are left to run in business in the future. Another main disadvantage of cutting price is that it may destroy the structure or pricing and the reputation of the products more or less. Alternatively, the company can raise the price of products but ration the quantity of products. By doing this, the price structure and the reputation may not be destroyed, but the quantity of demand will decrease sharply, because customers will be flinched by the high price.
It can be argued that reduce purchase is another efficient way to make cash. The company can buy inferior materials instead of the materials those in a high quality they used before. Then, they can buy some second-hand machine to produce products. From doing these, some money can be saved. However, obviously, the quality of the products will decrease. Consequently, after a period time, the reputation and expectation of the products will fall in customers’ mind. The products may be considered as low standard products but at the normal price, customers will choose other better goods instead. So this method is not suitable for a long run in business, or it can be said that it is not worth keeping running this business.
Similarly, the company can also reduce expenditure, such as cut down wages, reduce the staff trimmer, using less electricity and telephone and so on. Cutting wages will probably cause a panic among employees and make them under pressure. Because the employees may think that their company is going to pot, it is no longer as strong as before, it will not be able to pay them high wages in the future, so they had better find another job instead as soon as possible. Reducing the staff trimmer is a better method than cutting wages.
Because the company can keep some capable staffs and give up a few weaker ones, it will not only save lots of money but also make the company more efficient to run its own business. Another considerable and quick way to get enough cash is to sell fixed assets, such as office buildings, bureaus and so on. Alternatively, the company can just lease them when they are needed rather than buy them. This can save money but not suitable to do it in a long period because the cost increases monthly.