The definition of financial viability relates to the profitability of a business. A business can be considered financially viable if its offerings are likely to be profitable for the company. However, if it is unable to generate enough profit from its offerings, it will eventually end up damaging its financial health. For this reason, it is important to make sure that a business offers the products or services that are likely to generate sufficient profit for it to remain profitable.
To assess the financial viability of a business, it is important to understand the amount of capital it needs to sustain operations. Companies with a low capital base will need more financing to operate. In order to ensure this, they may need to obtain performance guarantees. These may come in the form of bank guarantees, parent company guarantees, insurance bonds, or letters of comfort. In some cases, companies may need to take personal financial guarantees from directors and trust beneficiaries.
A school that has failed to meet the financial viability definition must prepare a plan to make the required improvements and to reduce the risk of student tuition funds and interruption of instruction. This plan must also demonstrate the school’s ability to achieve a composite score between 1.0 and 1.4 for two consecutive fiscal years. If it meets these standards, it can continue operating under the zone alternative.
Another crucial aspect of financial viability is a business’s cash flow. When a business has fluid cash flow, it can better handle debt, invest, pay expenses, and forecast performance. By assessing the business’ cash flow, businesses can ensure that their operations are not burdened with excessive debt.
The key to a business’s success is its ability to survive and earn profits for a long time. If the revenue from its operations is greater than its expenses, the business is considered profitable. Otherwise, it will have to increase its revenue or cut costs to remain solvent. As a result, financial viability is closely related to profitability, solvency, and liquidity.
