We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is a Financial Impact?

By Theresa Miles
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A financial impact is an expense that has an an effect on a financial position that cannot be controlled. The types of events that create this type of impact are disasters, unexpected changes in market conditions, catastrophic product failures and anything else that interrupts business and over which business management has no control. Technically, the term is generic. It is often used to analyze any situation that changes any financial position. The concept of a financial impact does have a specific use in business management and financial accounting that limits the scope of the term.

Generally, events that have a financial impact change the financial position of the underlying situation. For example, the death of a husband will ordinarily have a financial impact on the rest of the family. Likewise, a high turnover rate can have an impact on a business. This is a generic use of the term, based on the definition of impact as the word relates to a change in one thing that is caused by another.

In financial accounting, the notion of a financial impact has a more structured meaning. Businesses are typically required to maintain an accounting system and generate reports that conform to national and international accounting standards. A financial impact in this context is defined so that businesses know when a specific occurrence that causes a particular financial situation should be labeled with this term.

Businesses regularly generate expenses that are offset by income. A business very rarely wants to purposely operate at a loss. Operating losses happen when expenses exceed income. An operating expense is considered to have a financial impact when the expense continues after the occurrence of a catastrophic event, even though the company's income has changed as a result, and it directly worsens the company's financial position.

For example, if an unexpected natural phenomenon, such as a tsunami, decimates a business so that it cannot generate the same level of income, there is typically a corresponding decrease in operating expenses. Plants close down and employees are furloughed. If there are certain operating expenses that cannot be canceled or offset by income, such as a lease for equipment that has to be paid regardless of the current circumstances or a monthly payment for technical support on a software program, they are deemed to have a financial impact on the company.

The types of situations that create expenses that have financial impacts are natural disasters, changes in market conditions, product disasters and other events that are beyond management's control. Expenses that cannot be covered by income after these sorts of occurrences are impactful because they have the ability to sink the company. Business managers and accountants pay special attention to this category of expenses so they can mitigate that impact before the effect on the company goes that far.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.