Legitimate business risk is the potential risk that a business faces in pursuing its legitimate objectives. When trading a company that has cash flow problems in New Zealand, there are several legitimate business risks that investors or directors need to consider. These risks include:
1. Credit Risk: If a company is experiencing cash flow problems, it may be at risk of defaulting on its debt obligations, which could harm its credit rating and affect its ability to obtain financing in the future.
2. Operational Risk: Cash flow problems can also affect a company's ability to operate effectively, leading to disruptions in production, delivery, or customer service. This can harm the company's reputation and lead to loss of market share.
3. Market Risk: A company that is struggling with cash flow problems may be at risk of losing market share to competitors who have stronger financial positions. This can lead to a decline in revenue and profitability.
4. Legal Risk: If a company continues to trade while insolvent or engages in fraudulent activities, it may face legal action from creditors, regulators, or other stakeholders. This can result in fines, penalties, or other legal consequences that can harm the company's reputation and financial position.
5. Reputational Risk: Cash flow problems can also harm a company's reputation if it is seen as financially unstable or unreliable. This can affect its relationships with customers, suppliers, and other stakeholders, leading to a decline in revenue and profitability.
In summary, legitimate business risks when trading a company that has cash flow problems in New Zealand include credit risk, operational risk, market risk, legal risk, and reputational risk. It is important for investors or directors to assess these risks carefully and take appropriate measures to mitigate them before making any investment decisions.