First Aid in crisis times

Recently, I underwent first aid training. The training was conducted by an acting ambulance doctor with ten years of experience. He spoke about what and how to do first of all an ordinary person in an emergency situation, in conditions when it is necessary to help the victim before the arrival of a medical worker or before the patient is placed in a medical institution.

A company is often compared to a living organism, to a person. A company in crisis, whether it is related to debt on loans or inefficient operations, can be compared to a victim who needs first aid. It is clear that any analogy is conditional, but the approaches to providing first aid to a person are surprisingly closely intertwined with the approaches to crisis management of [pre]-problem companies. Let's talk about this today.

How to recognize a crisis

A problem situation in a company is like a fire: it is always easier and cheaper to prevent than to extinguish it. However, fires continue to happen, and crisis phenomena in companies are observed every day around the world. In Russia, we are used to referring to local peculiarities: for many European managers and owners, business management in our country may seem to be one continuous crisis. At the same time, the overwhelming majority of insolvent and insolvent companies are managed, of course, by Russian managers. What prevents them from preventing a crisis in the company?

On the one hand, it is always enough for an external (at the same time, of course, trained, professional) observer to simply notice violations in the company's activities based on its results: financial, operational, informational. On the other hand, company managers, being "inside" the situation, tend to overestimate their strength and future business opportunities. The lack of trust in partners in the market is also an obstacle, as well as an excessively short planning horizon (due, among other things, to objective macroeconomic reasons). As a result, the crisis is perceived as something that can be waited out, endured, overcome on one's own, making more efforts in the initial direction. Sometimes this strategy works, but most of the time, as time passes (lost time!), companies face problems that are irreparable in normal mode.

My team has to work with crises in companies at different stages of its development: from the very inception (in rare cases) to [pre-]bankruptcy situations (most often). Based on experience in most problem situations, there are a number of signs by which it is possible to determine the development of a crisis. We tried to compile such signs into a single list and made a small interactive "barometer" to assess the extent of the crisis and make preliminary recommendations.

What to do first

Let's return to the analogy with the first first aid. If you are faced with a rapid development of a crisis situation in the company (delays and defaults on loans, cash gaps, non-payment of customers, a drop in demand and sales, a drop in profitability), you need to take a number of mandatory measures:

1.     First aid: urgent measures - elimination of danger, elimination of the causes of the lesion, stopping bleeding. In the case of a troubled business, this is to ensure control over cash flows, to prevent cash leakage. From a practical point of view, this is an understanding of the perimeter of current accounts, preliminary control of the budget of receipts and registers of payments, monitoring of actual receipts and expenditures, plan-fact analysis; ensuring control over the physical perimeter of the asset (security); provision of electricity, communications and basic raw materials. As the famous saying goes: there are only three things that are important in business, these are 1. cash, 2. cash and 3. cash.

2.     Next is the assessment of the situation, the prevention of possible complications. From a business point of view, this is the construction of a short-term forecast of cash flows, usually for a quarter ahead, in order to understand and cover potential cash gaps and "gain time" to develop a reasonable and comprehensive solution to the problem - conducting a situational analysis, analyzing options.

3.     In parallel with the second step, it is necessary to ensure the management of the situation and the maintenance of impaired body functions. In business, it is a change/strengthening of the management team. Often, this is the most painful, but also the most necessary step for "recovery". The risks that the existing team will not be able to respond correctly to the new conditions are too great. You can turn to temporary "crisis managers" for help, you can attract managers for the long term - the main thing is that they have a focus on crisis management and business recovery.

What NOT to do

1.     Panic. A general rule for all situations. As research and surveys of experts on survival in difficult conditions show, the most important factor needed in dealing with a crisis is a positive attitude, oddly enough.

2.     "Cut" costs. The simplest and often useless step, which in some cases can only aggravate the situation.

3.     Develop a plan "B". The worst development of events cannot be predicted by anyone. Having one (or even several) business plans can be dangerous: a deceptive sense of security and calm; lack of motivation to correct the situation, if it is still better than the conservative scenario; "under-hedging" risks; excessive reliance on plan "B" in any situation, even beyond the original plan.

What to do next

Further actions depend on the success of first aid (see above) and on the understanding of further prospects. On a recent project, after 4 weeks of initial analysis (first aid) and several months of more in-depth study (short- and medium-term development forecast, analysis of product lines, working capital, analysis of sources of financing and sustainable level of capital), European shareholders decided to sell their business in Russia and Ukraine. In another project, the initial analysis showed that the management needed to change the business model and market positioning – otherwise, the volume of free cash flow was not enough to service the debt to the bank.

Our methodology for the recovery of companies in crisis situations fits on one page. But all the most important, as always, is in the details. As Leo Tolstoy wrote in "Anna Karenina": "All happy families are alike, each unhappy family is unhappy in its own way."

Giving recommendations on working in a crisis is easy. It is difficult to work and fight the crisis. Armed with the right recommendations, you can increase the likelihood of a positive result.