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What Exactly is Liquidity Risk?

August 06, 2013 − by Keith − in Blog − Comments Off on What Exactly is Liquidity Risk?

When it comes to the world of finance, liquidity risk is considered to be the risk associated with a company that is not able to fund its business obligations. This can be caused by an organization’s inability to obtain the proper funding, or its inability to liquidate assets. Engaging appropriate enterprise risk management practices can mitigate liquidity risk for any organization.

The best way to avoid liquidity issues is to always ensure your organization’s ability to fund its operations. By examining potential scenarios for your business that could lead to an inability to fund day-to-day business operations, you can plan ahead for how to best avoid these problems. Risk management specialists will consider your daily cash flow in each scenario to make sure you determine your liquidity in each hypothetical situation.

Failure to ignore liquidity risk can be a disaster for your organization, giving investors the impression that your business operations are unsound and that your organization as a whole is unstable. A risk management expert can maintain your company’s reputation through sound risk-avoidance practices.

Best practices in risk management can help to guide you in your everyday decision-making. Knowing the risks associated with any business venture will improve your actions, and will result in better liquidity and happier investors. Today is the day to hire an enterprise risk management firm to ensure your organization’s continued liquidity. At Ledgewood Group, our team of advisors can help you determine your liquidity risk as well as assist with other capital management endeavors.

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