The financial viability of a company means its ability to generate the cash flow necessary to meet ongoing operational expenses and debt repayments.
It is also its ability to meet customer expectations while maintaining growth at the desired rate.
Factors Affecting Financial Viability
To determine the financial viability of a project/ business one needs to keep in mind Some of the factors affecting financial viability.
These factors are :
- Net worth
- Cash flow
- Forecasted performance
- Bottom line
Importance of Financial Viability
- Maintains operations within the company
The practices, operations and processes executed in an organisation need to be managed and maintained.
The management team in the company has the power to regulate business practices which can result in the highest level of efficiency within the company.
- Balances the cash flow and investments
Cash flow stability is one of the most important factors that determine whether a business is sustainable for the number of assets it possesses.
Everyday operations need to be appraised keeping in mind the cash flows.
It facilitates managing debts for the business, reinvesting in it, and paying expenses, as well as helping the business to comprehend the challenges facing it in the future.
- Stabilises customer base
In order to establish a viable business, the company's customer base needs to be stable.
The company should know about the people who are going to buy their products and services.
In order to do so the company should conduct a thorough research to know who those people are who want their products and services.
- Determines Solvency of an Organisation
To determine whether a company can stand financially in the future or not a solvency ratio is calculated.
It is a performance metric that analyses the financial health of a company and determines whether it can meet its long-term financial obligations.
A high solvency ratio is indicative of a company's ability to stay stable financially in the future.
'Project viability' refers to the likelihood that the Project will be successfully developed and will provide the services and products required.
This analysis is based on a review of the status and plans for key project activities.
Factors Affecting Project Viability
To determine the viability of a project one needs to assess a number of factors. These factors are:
Generally, projects are only worth it if the benefits outweigh the costs. The cost-effectiveness of the project can change from the moment it is conceived to when it's ready to be implemented.
For instance, if one has a particular amount of money designated for a project, and it appears actual costs will exceed the budget, the project is likely to lose its viability after spending more than its allotted funds.
Many factors can affect costs, such as an increase in the cost of supplies or materials or the scope of the project.
A project that is not on track from the perspective of deadlines then loses its viability as time goes by.
One of the most important things to consider when working on a project is the timeline.
If a project is not completed in time, it can lose its viability and result in time wasted and money lost.
Losing important staff members can make any project difficult. As an example, if one has a graphic designer on one's team who is working on the new logo.
But they suddenly quit without telling, the project may lose its viability because the expected manpower is no longer available.
The project can be revived if someone else takes on the task or it can be outsourced to another party.
Sometimes a project's anticipated quality cannot be achieved. If that happens, it loses its viability.
The project becomes less viable if the price goes up or the quality of materials is changed.
It becomes more viable again if you are able to get suitable substitutions.
FAQ’s related to FINANCIAL VIABILITY
- How can financial viability be improved ?
The crucial part of any business plan should be to improve the financial position of the business. The following steps can improve one's financial position and cash flow. Thus, improving its financial viability.
- Consult A Professional For Advice.
- Recover Any Unpaid Debt.
- Reduce Or Reorganise Your Spending.
- Sell The Assets.
- Offer Price Increases Or Markdowns.
- Debt Consolidation
- Use Modern Marketing Strategies.
- Provide More Payment Alternatives.
- Inquire About Government Grants
- Invest The Money
- Monitor Your Cash Flow.
- Make Your Cash Flow Better
- What is the difference between project viability and project feasibility ?
In order to assess a project's investment potential and sustainability, feasibility and viability are tools utilised.
Viability of a project is determined by the duration of its survival, whereas feasibility of a project is assessed by evaluating the workability and the profitability of a project.
The elements that decide project feasibility are analysis, calculation, and estimated projections along with other elements. On the other hand project viability deals with business strategies and tactics to prolong the life of the project.
- What are the types of project feasibility studies ?
Project feasibility studies are of five types :
- Technical feasibility
- economic feasibility
- legal feasibility
- operational feasibility
4. What is project viability analysis?
Project viability analysis is a set of tools that enables a project manager or other decision-maker involved in the project to decide if it is worthwhile to continue carrying out the project even though the odds are stacked against its success.
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