Growing distress
We move to another stage when the underlying causes are more than just surface-level hiccups. If there is a problem with revenues, earnings or cash flow, the business is approaching crisis territory. Management now needs to act.
There are some options: the business may be restructured, sold or rearranged by selling certain parts of it. At all events, you need to answer some tough questions.
Time for honest assessment
- Is there a need for additional capital or a new partner?
- Are customers leaving the company?
- Is the current management team able to handle the situation?
You need to plan how to survive in the short term and how to turn things around in the midterm. Eliminate underperforming products and services, reduce overhead costs. Only then can you turn to external stakeholders for support. You must rebuild their trust, which may have been weakened by recent underperformance. Consistent communication is needed and corrective action must be taken.
Liquidity crisis
If you have worries about how to finance the payroll and you start delaying payments, you are now in a full-blown liquidity crisis. Lenders are trying to reduce their exposure and you may start losing talented employees.
A strategy to exit or restructure must now be outlined. Cash planning is critical for survival. You need to discuss with outside parties (trade partners, shareholders, etc.), no matter how gruelling this might be.
Bankruptcy
If your efforts are unsuccessful, there now comes the final phase. Secured and unsecured lenders are likely to become directly involved. At this point the only possible options are a quick sale or a lengthy reorganisation, concludes an article on the cfo.com website.
-jk-