Business crises – Interpretation of first signs
A business crisis develops slowly, but steadily and in several steps. The problems originate long before everyone can see them in the balance sheet and the earnings statement. Diminished sales earnings from the typical „cash cows“ (profitable products) and a slow decline in gross profit are typical signs of a barely noticeable, but steady erroneous trend.
Forming of a crisis – up until what stage is still room to maneuver?
Five stages of a crisis can be observed – not just in theory, but in practice as well:
It can take years from the initial stakeholder crisis until a crisis of earnings has developed – at which point a crisis of financial liquidity is usually imminent. Early recognition as well as effective countermeasures are critical. The further the crisis has developed, the less room for maneuver there is to counter it. The same is valid for capital needs: The later the threat is recognized, the more capital will need to be invested.
But: Even in the event of insolvency proceedings the company is not necessarily at an end but might stand at the beginning of a major financial and structural recapitalization.