Leaving Certificate Business Practice Test 2026 – Complete Exam Prep

Introducing cutbacks is an effective strategy for avoiding cash deficits because it involves reducing unnecessary expenses, thereby preserving cash flow. When a business examines its spending habits and identifies areas where it can scale back—such as discretionary expenditures, non-essential projects, or overhead costs—it can redirect funds towards more critical areas or ensure that it has enough liquidity to meet its obligations. This proactive approach helps maintain financial stability and can prevent situations where the company might struggle to pay its short-term liabilities.

In contrast, buying stock in large amounts can strain cash reserves, as it requires a significant upfront investment that may not immediately generate returns. Increasing wages places additional financial obligations on the business, which can exacerbate cash flow issues, particularly if sales do not increase proportionately. Raising prices across the board may initially increase revenue, but it can also lead to reduced demand if customers find the higher prices unappealing, potentially worsening cash flow problems rather than alleviating them.