Handling financial difficulties

Handling financial difficulties

If you have planned to set up business in the Czech Republic, it is very important to take preventive measures in order to avoid any financial difficulties.

Preventive measures

An entrepreneur should have information on past development, current processes, the assumed future development and key moments. The source of various findings may be information on turnover, stock levels, development of receivables and liabilities, and others.

General risks

There might be a number of risk situations and crises in a company. The reason might be the wrong business activity, overvaluation of goals, etc. Other frequent problems include undercapitalized business when the entrepreneur or the company does not have enough equity, success, fraud, embezzlement, bribery and management failure.

It is important to respect legislative requirements, for instance those related to occupational safety or production quality. Another important point is meeting the tax duties to avoid large penalties. Respecting contractual obligations is equally important.

Protection against risks

Risk policy is used to prevent negative effect of risks. It is based on the identification of causes of risks, measuring their degree and protection against them. Protection against risks means:Handling financial difficulties

  • Defining the risk boundaries (the best and worst situations).
  • Division of risk.
  • Diversification of risk (have more suppliers).
  • Transfer of risk to entities (responsibility insurance, property insurance).
  • Creation of reserves.

Financial analysis

It is recommended to continually monitor the financial health of the company through financial analysis. A financial analysis compares values in the individual years and compares them to similar companies in the area. The analysis uses several indicators – indicators of profitability, liquidity (or the ability to repay liabilities), activity (turnover) and indebtedness.

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