There is no doubt about it: in economically uncertain times, many companies are vulnerable to crises. Now, special care in risk management is required. In times of energy crises, the conflict in Ukraine, and supply bottlenecks, very few companies know what tomorrow will bring, and many are flying blind. However, anticipating a company's development is crucial, especially in volatile times, to identify crisis indicators in time and largely avoid a life-threatening crisis. The StaRUG has made this a corporate duty. The Act on the Stabilization and Restructuring Framework, which came into force on January 1, 2021, aims to protect companies from insolvency and support them through various instruments during restructuring. Permanent planning and transparent risk management are mandatory components of the corporate toolbox. This allows management to assess how the company is developing at any time and identify crisis indicators before the crisis makes waves.
Knowing and recognizing warning signs
A corporate crisis can be triggered by a variety of problems. Currently, such external factors can include rising energy prices or broken supply chains. In the vast majority of cases, however, the crisis is "home-grown" and based on internal company factors and structural weaknesses. These could be, for example, inadequately planned corporate succession, deficits in sales, a lack of controlling, or incorrect financing structures. But even if the reasons for a corporate crisis are diverse, the signs of a crisis always follow similar patterns and can therefore be identified very well at an early stage—especially if, ideally, a target-performance comparison is available. If the actual performance is worse than expected, this can be a clear warning signal. Transparent planning with clearly defined planning premises and actual figures, which transparently shows 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 exists in a vacuum and is only of limited significance. Even more dramatic are late actual figures. Anyone who only finds out about a month's results at the time of the VAT deadline extension is wasting valuable time. That is why forecasts and effective liquidity management should be standard practice to create the necessary transparency.
Time is of the essence: Be faster than the crisis
The warning signs of a crisis are multifaceted, ranging from employee resignations and 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 with a bad gut feeling or the slightest sign of a disruption, it is the task of corporate management and control to take immediate action. An analysis will show whether the disruption is the first sign of an impending crisis, or whether it reveals that the disruption is only the tip of the iceberg and the corporate crisis has long been simmering underneath. If a corporate crisis is identified, tailored action plans are drawn up as part of a restructuring concept. When developing immediate, organizational, or product-related 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 state of the organizational, financial, or operational conditions? Does the crisis manifest itself, for example, in tensions and disputes between stakeholders, or is it already reflected in earnings and liquidity?
Step by step: Paths out of the crisis
Numbers do not lie, and a crisis only goes away on its own in exceptional cases. If entrepreneurs or management are unsure about assessing the company's situation, it is advisable to seek an outside opinion at an early stage. A professional, neutral perspective, free from personal involvement and interests, opens up the possibility of acting quickly and effectively to lead the company out of the crisis. Once the crisis status has been left behind, a concept for increasing the company's resilience must be implemented to better cushion future crises.
Whether and how successfully a restructuring is carried out depends on many factors, and above all on the factor of time. With its extensive restructuring portfolio, THE MAK'ED TEAM looks 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 operational processes at an early stage and quickly develop a tailored restructuring concept. This aims not only 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.
You can find more about crises, turnarounds, and restructuring here.
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