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Liquidity is known as a very important role in running a business and help companies to survival for a long period.

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Introduction

Liquidity is known as a very important role in running a business and help companies to survival for a long period. It measures that whether the company is generating sufficient cash and it is a very common cause of business failure. Consider about the liquidity crisis that the ABC PLC faces, to solve this problem, this essay will examine some possible solutions and analyse the effects those may happen after implementing them. The purpose of solving the liquidity crisis is to collect cash as soon as possible in order to ensure that cash is available to deal with other cash requirements, in other words, cash is needed to run in the liquidity cycle quickly. In this case, the first considerable way is to reduce current price and sell more products. Discount is always an impactful swash to consumers. So there will be a dramatic increase in the quantity of demand. More consumers buy products, more profits the company makes. As a result, there will be more immediate cash to pay other requirements. However, there will be less stock in the storage, after a long period, because of liquidity problem, the company do not have enough money to produce more products, then when the company receives new orders, they may not able to take them. ...read more.

Middle

So this method is not suitable for a long run in business, or it can be said that it is not worth keeping running this business. Similarly, the company can also reduce expenditure, such as cut down wages, reduce the staff trimmer, using less electricity and telephone and so on. Cutting wages will probably cause a panic among employees and make them under pressure. Because the employees may think that their company is going to pot, it is no longer as strong as before, it will not be able to pay them high wages in the future, so they had better find another job instead as soon as possible. Reducing the staff trimmer is a better method than cutting wages. Because the company can keep some capable staffs and give up a few weaker ones, it will not only save lots of money but also make the company more efficient to run its own business. Another considerable and quick way to get enough cash is to sell fixed assets, such as office buildings, bureaus and so on. Alternatively, the company can just lease them when they are needed rather than buy them. ...read more.

Conclusion

Firstly, negotiate more credit may undermine the company's reputation. The creditors will be doubtful of that whether the company is able to pay off the bills or not, they lose confidence. Once they consider that the company is unable to pay, they will not loan money to the company any more. Secondly, if the company mortgages something to the creditors, they may refuse to give them back. Thus, this will strongly influence the future activity of this company. If the company is still face the liquidity crisis after adopting some methods, there is one serious way is to sell its shares to the publicly. While money coming into the company, it is also losing its control through the whole company. If the majority of shares are bought buy another company, this company will be easily taken over. This is a very serious problem. Besides the instruments those are analysed hereinbefore, there are still some reasonable methods to solve this liquidity problem, such as replace overdrafts with long term loans, negotiate additional finance and so on. These methods are all efficacious to some extent but have their own disadvantages. Therefore, to conclude, the companies should adopt different ways to solve the liquidity problem depend on their own financial situation, so they can live through this crisis more easily. ...read more.

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