Corporate Financial Distress: Internal and External Causes and Solutions to Avoid It
تواجه الكثير من الشركات مشكلة خطيرة قد تهدد استمراريتها في السوق، وهي مشكلة التعثر المالي.
المقصود بالتعثر المالي هو عدم قدرة الشركة على سداد التزاماتها أو ديونها في المواعيد المحددة، وهو ما يُعرف أيضًا بفشل إدارة الدين. هذه الأزمة قد تحدث بشكل مفاجئ، وقد لا تدرك الإدارة أسبابها إلا بعد فوات الأوان.
In this article, we review the internal and external causes of financial distress, then offer the best solutions to avoid it.
First: Internal causes of financial distress
Internal reasons are those that are directly related to the company's management and its decisions:
- Neglecting operational and financial plans developed at the beginning of operation or the beginning of the year.
- اضطراب النشاط التشغيلي نتيجة عدم تعامل الإدارة بجدية مع العقبات والمشكلات.
- تفاقم الأزمات مع تراجع الأرباح والتدفقات النقدية، واللجوء للاقتراض طويل الأجل أو بيع الاصول لسداد الالتزامات.
- Accumulating losses and a lack of liquidity until the company reaches a stage of actual default, which may end in declaring bankruptcy and liquidating the business.
Results of internal mismanagement
- Low productivity and high labor turnover.
- زيادة الهدر في المواد الخام أو المنتجات الجاهزة.
- Frequent breakdowns in production lines.
- High operating and production costs.
- Declining profits and loss of competitiveness.
Root causes
- Lack of budget estimate for the work from the beginning.
- Not conducting feasibility studies for new projects.
- Over-reliance on borrowing and increased interest costs.
- Ignoring real financial indicators when making decisions.
Internal causes of financial distress
Even with good management, companies may face external factors beyond their control, such as:
- Economic depression as it happened during the Corona pandemic.
- Interest rates rise, raising borrowing costs.
- Decrease in the value of the currency due to inflation.
- Market instability and associated fluctuations affect sales and profits.
Third: Solutions to avoid financial distress
To protect a company from falling into financial distress, several preventive measures are necessary:
- Preparing an accurate budget that includes all departments and production processes.
- Conducting comprehensive feasibility studies for any new project or production line.
- Monitor and analyze financial indicators periodically.
- Create a clear cash flow management model.
- Dealing with sudden problems quickly and professionally.
- Applying the principle of prevention is better than cure through early warning of financial risks.
Conclusion
Financial distress does not occur suddenly; rather, it is the result of an accumulation of internal factors related to mismanagement, or external factors related to market conditions. The solution lies in sound financial planning, continuous monitoring, and a feasibility study before any action. Companies that adhere to these measures will be better able to continue and compete in the market.
