Companies in Crisis – What Are the Root Causes and Early Signs?

A company crisis develops gradually that will go through different stages. The root cause of the problem starts developing a long time before the consequences become apparent to everyone by looking at the profit and loss account and the balance sheet. Oftentimes, a decline in sales in what had originally been deemed a cash cow venture and slowly decreasing gross profits are harbingers of a hardly noticeable but steadily progressing unfortunate development within the company.

Different Forms of a Crisis – How Much Can Still Be Done?

We differentiate between five stages of a crisis – this is not just a theory, all of the stages can be seen in practice:

It can take years to pass from a stakeholder crisis to a performance crisis, whereas oftentimes, the company will quickly pass on to a liquidity crisis from there. It is of paramount importance to detect the crisis early on and make critical decisions to counteract it. The more advanced the crisis, the fewer measures can be taken to overcome it. The same goes for the capital requirements: the later the crisis is detected, the higher the total expenditure.

Bear in mind: To open insolvency proceedings or insolvency plan proceedings does not have to mean that all is lost. It can also be the beginning of profound financial and structural recovery process.