Financial viability is the capacity of an organization to attain its operating objectives while it fulfills its goals and mission over a long period. It is usually important to the organization since it is a determinant of many factors. Among the significance of financial viability is that it enables the organization to acquire adequate resources. This includes aspects such as equipment, staffing, working capital, administration, machinery and facilities. When an organization is financially viable, it can get the best of these resources. The quality of resources matters since it results in increased productivity in one way or another. A good example is how high performing employees tend to ask for high wages. Failure to provide them with what they want presents the competitors with an opportunity to poach them.  An organization’s financial viability also determines whether an organization maintains its operations and its solvency. Some operations can only be maintained in light of viable financials. This is because they are extremely capital intensive. Solvency on the other hand, resonates with the organization’s ability to meet its long-term financial commitments. It ought to be viable financially for this to happen. In case the organization becomes insolvent, it is dissolved.

There are several consequences that accrue to an organization as a result of practicing poor financial management. These implications can be either short-term or long-term. Short-term implications entail there being a variance against the budget. The amounts available for certain expenditures tend to be less than what is expected. This acts as a hindrance to executing day to day activities in an efficient manner. The aspect also creates room for theft within the organization. Individuals interested in embezzling funds can do so with great ease since the systems put in place makes it possible for them. In such situations, the chances of being caught are also low since the internal control system is weak. Wastage of funds is also likely to occur since most people are not aware of the appropriate amounts to allocate various resources. In the end, it becomes difficult to attain various organizational thresholds since some departments are not receiving resources in an adequate manner. Long-term implications on the other hand include insolvency. When the organization is not able to manage its finances, it will fail in meeting long-term financial commitments. Poor financial management is also likely to amount to a poor reputation of the organization. This is because the organization will be making a string of losses annually. Many stakeholders would not want to be associated with the organization since it lacks the prospect of bringing positive results. Cessation of business operations is also likely due to the failure of meeting various financial obligations. This is where the organization is declared bankrupt, and the process of dissolution commences.

Terminologies

Debtor

A debtor is an individual or company that owes money. If the debt is as a result of a loan from a financial institution, then the debtor is recognized as a borrower. When the debt comes from securities like bonds, the debtor is referred to as an issuer.  Failing to pay a debt is not recognized as a crime though the debtor has breached an agreement or contract. Commercial and business debts ought to be in writing for them to be enforceable.

Break-even Point

This is a point in time where the revenues forecasted are equal to the estimated organizational costs. At this point, the organization does not accrue either a profit or loss. The losses start to diminish as profits start accumulating. It is a point where the business starts to become financially viable.

Variable Cost

A variable cost is an organizational expense that tends to vary depending on the production level. These are the costs that depend on how much volume a company produces. As the number of units being produced increases, variable costs increase. Variable costs may include direct labor costs and direct material costs that are deemed necessary to complete a given activity.

Depreciation

This is the aspect of an asset losing its value as a result of unfavorable market conditions. For the sake of accounting, depreciation serves as an indication of how much value of an asset has been used up. Businesses are expected to depreciate tangible assets while accounting for tax. This is done in accordance to relevant accounting standards.

Budgets have several uses within the organization. Among them is the establishment of numerical priorities and targets. The aspect of priority comes in when deciding the allocation that every department is likely to get. Departments that are considered of high priority tend to be on the forefront during allocation. Budgets also help in monitoring performance and informing management decisions.  Performance is assessed based on the resources allocated, compared to the results derived. A budget is also useful in supporting innovation, planning for future activities, assigning responsibilities and co-ordination of activities.

A budget can be managed in a variety of ways. Among them is the identification of priorities and timescales. Here, allocation of funds is made based on how a certain activity is deemed important to the organization or its expected time of completion. Another way is through negotiations and agreements on issues to do with financial resources. Individuals involved with the budgets tend to agree what goes where at any given time. In addition, budgets can also be managed through reporting and communication of changes, monitoring of income and expenditures against planned activities, investigation of unaccounted variances among other ways.

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