No question about it! In economically uncertain times, many companies are susceptible to crises. Now is the time to take special care in risk management. In times of energy crisis, Ukraine conflict and supply bottlenecks, very few companies know what tomorrow will bring and drive on sight. However, anticipating the development of one’s company is crucial, especially in volatile times, in order to recognize crisis indicators in good time and largely avoid a crisis that could threaten the company’s existence. The StaRUG has made this a corporate duty. The Stabilization and Restructuring Framework Act, which came into force on January 1, 2021, aims to protect companies from insolvency and support them in a restructuring process through various instruments. Permanent planning and transparent risk management are mandatory components in the entrepreneurial toolbox. This enables management to assess how the company is developing at any time and to identify crisis indicators before the crisis makes big waves.
Knowing and recognizing warning signals
An entrepreneurial crisis can be triggered by a variety of problems. At present, such external factors may include rising energy prices or broken supply chains. In the vast majority of cases, the crisis is “home-made” and is based on internal company factors and structural weaknesses. These can be, for example, inadequately planned company succession, deficits in sales, lack of controlling or incorrect financing structures. However, even if the reasons for a company crisis are manifold, the signs of crisis always follow similar patterns and can thus be identified very well at an early stage – especially if, ideally, a target/actual comparison is available. If the actuals turn out worse than expected, this can be a clear warning signal. Transparent planning with clearly defined planning premises and actual figures that transparently show how things should be going and how they are currently going is the most important tool for crisis prevention. If planning is missing, the actual figure is in an airless space and is only of limited significance. Late actual figures are even more dramatic. If you don’t find out about a month’s results until the sales tax deadline for the extension of the standing deadline, you waste valuable time. That is why forecasting and effective liquidity management should be part of the standard in order to create the necessary transparency.
Time is of the essence: Be faster than the crisis
The warning signals of a crisis are multifaceted and range from employee layoffs to failures to increased competitive pressure. The earlier a crisis is recognized as a crisis, the higher the chances that the company can be successfully restructured. Even if there is an uneasy gut feeling or the slightest sign of a disturbance, it is the task of the company’s management and control to take immediate action. An analysis reveals whether the disruption is the first sign of a crisis brewing. Or it reveals that the disruption is only the tip of the iceberg and that the corporate crisis has long been bubbling underneath. If a corporate crisis is identified, tailor-made action plans are developed as part of a recovery concept. In developing the immediate, organizational or product measures and the corresponding recommendations for action, much depends on the stage of the crisis. How advanced is it already? Which areas of the ecosystem are affected? What is the status of the organizational, financial or performance situation? Does the crisis manifest itself, for example, in tensions and disputes between stakeholders, or is it already evident in earnings and liquidity?
Step by step: ways out of the crisis
Figures don’t lie and a crisis only passes by itself in exceptional cases. If entrepreneurs or management are uncertain in their assessment of the company’s situation, it is advisable to seek an outside opinion at an early stage. A professional neutral view, without personal involvement and interests, opens up the possibility to act quickly and effectively and to lead the company out of the crisis. Once the company has left crisis status, it is imperative to implement a concept to increase the company’s resilience in order to better cushion future crises.
Whether and how successful a turnaround is depends on many factors and, above all, on the time factor. With its extensive restructuring portfolio, THE MAK`ED TEAM can look back on a wealth of experience in the restructuring of medium-sized companies. We know what to look for and what to pay attention to in order to identify errors and weaknesses in the business process at an early stage and to quickly develop a tailor-made turnaround concept. This not only aims to avert the worst, but also to make the best possible use of opportunities for the company so that it can pursue its goals more robustly and strongly.