Every company can experience a crisis at some point in its existence. The best way to deal with difficult situations is to face them early and take action. This also includes being willing to get help from experts.
A company crisis can have many causes: a major customer defaulting, a global economic crisis, a new political environment, a pandemic. However, in the vast majority of cases, the causes of a crisis lie within the company itself. In medium-sized companies, the success of the company is particularly closely linked to the person of the managing director or entrepreneur. Sudden illness, death or even a mere decline in the owner's ingenuity has caused many companies to falter. In order to generate profits in the long term, a company must constantly reinvent itself, develop new products and explore new sales channels.
In most cases, the companies affected realise far too late which areas of the business are doing well and where difficulties are emerging. A lack of controlling is cited by many insolvency administrators as a major cause of corporate crises. In addition, medium-sized companies usually have too little equity to overcome a crisis.
Unfortunately, most companies wait far too long before they actually face an impending crisis and thus lose the chance of rescue. As long as financing partners, suppliers, employees, customers and other stakeholders have confidence and not all financial reserves have been exhausted, the company still has a certain amount of room for manoeuvre. As the crisis progresses, this room for manoeuvre shrinks more and more. The earlier a business owner acts during a crisis, the greater the chances are that they will be able to continue operating.
If the company's difficulties are recognised very early on, the crisis can still be overcome by means of out-of-court (private) measures. The prerequisite for this is a convincing business plan. Depending on the individual situation, a number of different restructuring approaches are available to the company, such as:
If the pressure from creditors is already too great, the only thing that will help is to file for bankruptcy. This procedure enables the company to restructure itself and to find a compromise with its creditors. Here, too, the sooner the better. A distinction is made between restructuring procedures with and without self-administration. Sometimes the industry expertise of the previous business owner is crucial to the success of a restructuring. In other cases, the trust between creditors and entrepreneurs has been so badly damaged that only an outsider can restore it. A restructuring consultant can help you find the most promising path to a successful turnaround.
Every restructuring process begins with a detailed analysis of the causes of the crisis. This involves taking a close look at the cost and revenue structure, the value creation processes and the financing structure, and identifying the strengths and weaknesses of the company. On this basis, a clear action plan must be developed and consistently implemented. An efficient and resource-saving approach is essential. In addition, all stakeholders, i.e. suppliers, banks, employees, public corporations and, if applicable, customers, should be involved from the outset. This is because restructuring or reorganisation can only be successful if everyone pulls together.
A corporate crisis almost always inevitably leads to liquidity bottlenecks. Often, the existing financing structure, with too little equity and too much short-term financing, massively restricts the scope for action. In these cases, the success of the restructuring depends largely on the search for suitable investors who are willing to invest risk capital, take over the liabilities of the bank and provide the company with the necessary liquidity.
Entrepreneurs often lack the legal knowledge to find the most promising path to restructuring. In particular, if the crisis is due to management errors or inadequate controlling, it will be difficult for the managing director to discover the true causes of the crisis and possible potential for turnaround. A professional restructuring consultant with crisis experience is recommended, especially since the managing director also faces personal liability risks if restructuring proceedings are initiated. A capable restructuring consultant will find it easier to convince stakeholders or insolvency administrators of the need for restructuring. Moreover, their experience allows them to take over management on an interim basis if necessary, until trust in the previous management is restored. Ideally, they will also have a large network that is invaluable when it comes to finding investors and raising liquidity and venture capital.
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