"Fewer benefits at Google, Apple's VR
glasses as a billion dollar grave: some things are interpreted as signs of a
corporate crisis. Here, insolvency administrators and auditors reveal when
things really get serious.
New modesty or real alarm signal? It
wasn't just the employees of Google parent Alphabet who asked themselves that
in April when the group announced that it would be cutting employee benefits.
The company buses are not fully utilized and the range of dishes in the café is
too extensive, according to an internal message. Fitness courses and massage offers
would also be subjected to the efficiency measures. That made the employees sit
up and take notice. But not only such obvious austerity measures cause suspicion.
Even a supposed technological
milestone, such as Apple's new virtual reality glasses, actually points to an
existential crisis for some experts. The "New York Times" reported
internal doubts as to whether Apple had messed with the multi-billion dollar
project and whether there really was a market for the $3,000 product.
In general, problems and bottlenecks
are piling up everywhere. But when does a company really head for the abyss?
Anyone who knows the warning signals of bankruptcy knows when it might be time
to take the plunge.
Experts distinguish these five
phases that a company typically goes through before insolvency:
1. Stakeholder Crisis
2. Strategy Crisis
3. Profitability crisis or product
and sales crisis
4. Earnings or Success Crisis
5. Liquidity Crisis
"The stakeholder crisis is
sometimes difficult to recognize," warns Klaus-Peter Naumann, spokesman
for the board of the Institute of Public Accountants (IDW). This first phase of
a corporate crisis often progresses slowly. Therefore, at first glance, there
are no serious effects. "But the problem is that it lays the foundation
for the crises that follow," explains the economist.
This leads to
conflicts between or within certain groups in the company. This can be a
dispute in the company management, between the management and the works council
or disputes with banks and important suppliers. The result is a bad mood and a
lack of information. "These conflicts often lead to blockages and prevent
necessary decisions," explains Naumann. This leads directly to the next
phase.
"In the strategy crisis, there
is also the loss of market share, more complaints and a lack of market
orientation and strategy," says Christoph Niering, chairman of the
Association of Insolvency Administrators and Trustees in Germany (VID).
According to Naumann, companies that find themselves in this phase of the
crisis have, for example, fundamentally misjudged the market development and
the wishes of the customers. As a result, important products and services are
missing. In addition, internal processes are insufficiently digitized or
investments are made in ineffective innovations. Many an observer thinks of the
Deutsche Bahn debacle at the start of the Germany ticket, when the booking
system collapsed under the expected demand.
If a company does not manage to overcome this phase, customers remain
skeptical and the company slips into the third phase of the crisis. In the
product and sales crisis, demand collapses. This increases inventories and the
capital tied up in them. However, it is also possible that a company cannot
work to the usual extent and thus slips directly into this third phase. This
was the case, for example, during the corona pandemic.
Crisis affects employees
In this third phase of the crisis,
things are finally getting serious in view of falling sales. "At the
latest in the profitability crisis, savings will also be made on
employees," says insolvency administrator Niering.
The result: reduced
bonus and special payments, thinning out departments and the first top
performers are leaving the company. "This makes the working environment
much more difficult for the remaining employees," says the expert,
describing the situation. “In extreme cases, they are increasingly concerned
with crisis and outage management. The work that is actually important is left
undone.”
If the product and sales crisis is only temporary - as was often the
case during the pandemic - according to Naumann, it is important for companies
to keep their valuable employees. Short-time work, the reduction of time
credits or a reduction in weekly working hours could be signals of this stage of
the crisis. According to the auditor, this also includes special offers,
discounts and additional advertising to increase sales. Furthermore, according
to Naumann, the introduction of new products can indicate that a company wants
to escape the third stage of the crisis.
If the rescue attempts fail, the
finances come to a head emergency in the success or earnings crisis. Return on
sales falls, liquidity deteriorates and liabilities to suppliers increase.
Naumann reports that solvency can often initially be maintained through a
clever liquidity policy. Even in this way, management can hide the extent of
the crisis from the workforce.
However, if wages are then paid too
late or not at all, a company has reached the last stage before bankruptcy.
This transition from the earnings crisis to the liquidity crisis is dramatic,
but is often hardly communicated by companies. "In smaller companies,
there is often only vague information about the company's difficulties,
combined with the statement that things will soon go uphill again,"
reports lawyer Niering. "In larger companies with employee
representatives, there is usually a request in this situation to renegotiate
the collective bargaining framework, taking into account the difficult situation
of the company."
The acute liquidity crisis can drag
on for a while. "An attempt is made to plug financial gaps by ripping open
others," explains Niering. “Often those who bring and use the greatest
threat potential get their money. Employees are often not part of it.” At the
latest when salaries no longer end up in the account, all employees realize the
seriousness of the situation. “Previous assurances and announcements have not
come true. It is becoming clear that hopes of a turnaround were deceptive,”
says Niering.
Alarm sign: Terminate top performers
According to the insolvency
administrator Niering, even members of the management now like to resign,
provided they are not part of the owner family. Younger and highly qualified
employees also often quit in such a severe crisis. The shortage of workers and
skilled workers in recent years makes such a change easier, especially for
mobile applicants, says Niering. "Then these chances are so good today
that even with the slightest sign of a crisis, the willingness to change
increases sharply." "Many also mentally divide their working life
into different sections that do not necessarily have to take place with one
employer."
If the liquidity crisis is not
bridged with fresh money from outside, it very often ends in insolvency. It
offers its own possibilities for renovation. "You can use these tools to
get a company back on its feet today," says Niering. "The
prerequisite, however, is that the liquidity crisis did not last too long and
that employees, suppliers and customers did not lose confidence in the
company's ability to survive."
According to the expert, the earlier
insolvency is initiated, the greater the chance that employees will still be
needed after the restructuring. Conversely, this means: The longer it takes
with an obviously necessary insolvency, the more it can be worthwhile to look
for another job. "Since many insolvency applications in Germany are filed
too late, restructuring is often hardly possible," criticizes Naumann.
According to the German Federal Statistical Office, only five percent of insolvencies
have been rescued in recent years. This secured 12,196 jobs.
Incidentally, it is a misconception
that management is always the first to notice when the company is heading for a
serious crisis. Employees in direct contact with customers or suppliers are
often the first to recognize an imminent crisis, explains Niering - for
example, when customers are becoming increasingly dissatisfied, products that
are in high demand are not available or suppliers suddenly demand payment in
advance. According to Naumann, it is therefore particularly important that the
communication channels in a company work - so that the early warning signs of a
crisis reach decision-makers quickly."
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