What risk do teams face if they do not monitor their liquidity ratios in BSG?

Monitoring liquidity ratios is crucial for teams in the Business Strategy Game because it directly impacts the company’s ability to meet short-term obligations. If a team fails to keep an eye on these ratios, it risks becoming financially distressed. This situation can manifest as an inability to pay suppliers, service debts, or cover operational costs, which could lead to serious financial challenges or even insolvency.

Maintaining a healthy liquidity ratio indicates that the company has enough liquid assets to cover its current liabilities, allowing for smooth operational flow. Without this oversight, a team could find itself in a position where, despite potentially having a solid long-term strategy or profitability, it faces immediate cash flow crises, disrupting operations and damaging relationships with stakeholders.

While overexpansion, increased customer churn, and inventory shortages may pose risks to a business, they are typically separate from the direct consequences of liquidity management. Overexpansion relates to growth strategies, customer churn involves retention issues, and inventory shortages deal with supply chain management rather than immediate cash availability. Thus, financial distress stands out as the primary risk linked to inadequate liquidity monitoring.