No question about it: in economically uncertain times many companies are vulnerable to crisis. Particular care in risk management is called for now. In times of energy crisis, the conflict in Ukraine and supply bottlenecks, very few companies know what tomorrow will bring and are navigating by sight. Anticipating how your company will develop is decisive precisely in volatile times, in order to recognise crisis indicators in good time and largely avoid a crisis that threatens the company's existence. The German StaRUG has made that an entrepreneurial duty. The law on the stabilisation and restructuring framework, which came into force on 1 January 2021, aims to protect companies from insolvency and to support them in a restructuring through various instruments. Continuous planning and transparent risk management are mandatory components of the entrepreneurial toolbox. Management can then judge at any time how the company is developing and identify crisis indicators before the crisis makes big waves.
Knowing and recognising warning signals
An entrepreneurial crisis can be triggered by a wide variety of problems. At present such external factors might be rising energy prices or broken supply chains. In the vast majority of cases the crisis is home made and is rooted in internal factors and structural weaknesses. These may be an inadequately planned business succession, deficits in sales, missing controlling or the wrong financing structures. But even though the reasons for a company crisis are varied, the signs of crisis always follow similar patterns and can therefore be identified very well at an early stage, especially where a target versus actual comparison is available. If the actual figures come out worse than expected, that can be a clear warning signal. Transparent planning with clearly defined planning assumptions and actual figures, showing transparently how things should be going and how they are going, is the most important tool of crisis prevention. Without planning, the actual figure sits in a vacuum and has only limited meaning. Even more dramatic are late actual figures. Anyone who only learns a month's result at the VAT deadline under an extended filing period is wasting valuable time. Forecasting and effective liquidity management should therefore be standard, in order to create the necessary transparency.
Time is everything: being faster than the crisis
The warning signals of a crisis are many sided and range from resignations through setbacks to increased competitive pressure. The earlier a crisis is recognised as a crisis, the greater the chances that the company can be restructured successfully. Even at a mere uneasy feeling or the smallest sign of disruption, it is the task of company management and steering to act immediately. An analysis will show whether the disruption is the first sign of a crisis in the making. Or it will reveal that the disruption is only the tip of the iceberg and that the company crisis beneath has long been simmering. Once a company crisis is identified, precisely fitting action plans are worked out as part of a restructuring concept. In developing the immediate, organisational or product measures and the corresponding recommendations, a great deal depends on the stage of the crisis. How far advanced is it already? Which areas of the ecosystem are affected? What is the state of the organisational, financial and operational situation? Does the crisis show itself in tensions and disputes between stakeholders, for instance, or is it already visible in earnings and liquidity?
Step by step: routes out of the crisis
Figures do not lie, and a crisis only passes by itself in exceptional cases. If entrepreneurs or management are unsure how to assess the company's situation, it is advisable to seek an outside opinion early. A professional, neutral view without personal involvement or interests opens up the possibility of acting quickly and effectively and leading the company out of the crisis. On leaving the crisis status, a concept for increasing the company's resilience should be implemented without fail, so that future crises can be cushioned better.
Whether and how successful a restructuring is depends on many factors and above all on the factor of time. With its extensive restructuring portfolio, THE MAK'ED TEAM can draw on a wealth of experience in restructuring mid sized companies. We know what to look at and watch out for in order to recognise faults and weaknesses in operations early and to develop a precisely fitting restructuring concept quickly. That aims not only at averting worse, but also at making the best possible use of the opportunities for the company, so that it can pursue its goals more robustly and with greater strength.
You can find more on crisis, turnaround and restructuring here.
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