Crises unfold in stages
In restructuring practice, a phase model that distinguishes typical crisis stages is widespread. It often begins with a stakeholder crisis: conflicts between shareholders, management, workforce or important partners paralyse decision-making. This may be followed by a strategic crisis in which the business model no longer fits the market.
In the product and sales crisis, revenues or market shares decline because the offering, price or sales approach is no longer convincing. The earnings crisis manifests itself in declining results, up to and including losses. At the end comes the liquidity crisis, in which solvency itself is at risk. Not every company passes through all stages in this order, but the model helps to locate one's own situation.
Typical warning signs
Many warning signs are visible in day-to-day business but are easily overlooked or dismissed as temporary. What matters is to monitor them systematically and to assess them not individually, but in context.
- sustained decline in incoming orders or quotation success rate
- declining gross profit despite stable revenues
- increasing customer payment periods and lengthening payment terms with suppliers
- permanent full utilisation of the credit line
- dependence on a small number of major customers or suppliers
- turnover of key personnel and poor morale in the business
- late or incomplete monthly figures
A typical occasion for an early detection analysis
A typical occasion is a company whose revenue appears stable but whose account balance becomes tighter from month to month. Management initially attributes this to seasonal fluctuations. On closer examination, it emerges that the gross margin ratio has been falling for some time and customers are settling their invoices later and later.
It is precisely in such situations that a sober review of the current position pays off. It shows whether this is a temporary dip or the beginning of an earnings crisis, and it provides the basis for timely decisions.
An early warning system with a few key figures
An effective early warning system need not be elaborate. A few KPIs (key performance indicators) collected monthly and compared with the previous year and the plan are often sufficient – such as order backlog, gross margin ratio, personnel cost ratio, receivables collection period and available liquidity. It is important that the figures are available promptly and that a threshold value at which action is taken is defined for each key figure.
Together with you, we analyse which key figures are meaningful for your business model, set up a simple reporting system and define threshold values. In this way, a vague sense of unease becomes a reliable basis for decisions.
Keeping statutory duties in view
Managing directors have statutory duties to monitor the development of their company and to act when it is at risk. Which duties apply in an individual case is a legal question. We therefore expressly advise bringing in a lawyer or tax adviser at an early stage as soon as a serious crisis becomes apparent.
Frequently asked questions
At what point is it called a crisis?
There is no fixed threshold. From a business perspective, a crisis begins when developments jeopardise the continued existence or earning power of the company. The earlier you act, the more options you have.
Are my tax adviser's management accounts sufficient as an early warning system?
The BWA (betriebswirtschaftliche Auswertung – management accounts) is an important basis, but it looks backwards. For early detection, leading indicators such as incoming orders and the liquidity forecast should also be monitored.
How long does it take to set up a key figure system?
That depends on the quality of your existing data. We discuss the scope after an initial review of your documents.