Even though the recession in 2023—which most experts had previously feared—did not materialize, and inflation rates have so far been lower than expected, uncertainty and tension persist for many small and medium-sized businesses. Andreas Latsch and Daniel Manegold will explain when a small or medium-sized business is considered to be in a crisis situation and what the various phases of a classic crisis path look like.
In 2022, the COVID-19 pandemic—which continues to dominate everything—led to further significant disruptions in economic life. Despite the partial lifting of restrictions, these disruptions continued to have a major impact and significantly curtailed the growth expectations of small and medium-sized enterprises, particularly in the form of disrupted global supply chains.
As of February 24, 2022, this situation then abruptly worsened significantly due to the invasion of Russian troops into Ukraine and the war, which has now been ongoing for more than a year. The war in Ukraine is causing immeasurable suffering for the people there; by comparison, the economic impact on Germany seems secondary. Nevertheless, it is important to keep the economic consequences of the war in mind, as these—primarily in the form of rising energy prices and increasingly scarce raw materials, combined with overall rising inflation—have continued to severely hamper a potential recovery for many small and medium-sized enterprises.
Despite inflation remaining high at the start of 2023 and energy and raw material prices continuing to hover at high levels, leading experts from global financial and economic institutions, as well as policymakers, no longer expect the European economy to slide into a recession. Contrary to previous expectations, the European Commission now forecasts gross domestic product growth of 0.9 percent for the EU and 0.2 percent for Germany in 2023. Inflation is also expected to be lower than previously feared. As a result, the economic situation is likely to improve slightly, though it will remain tense in many areas. But as a small or medium-sized business, how can I tell if my company is on a path toward crisis?
Stages and Signs of a Crisis
During a recession, the slide into a crisis does not take place over 2 to 3 years, but rather within a few weeks or months. The dynamics of a recessionary trend are generally not linear but extremely erratic due to disruptive changes. For this reason, management must react extremely quickly to address unexpected developments in a timely manner and implement necessary changes. In reality, however, the presence of a corporate crisis is often only truly felt when the company’s profits decline significantly or turn negative and/or when liquidity becomes tight. Yet the crisis actually begins much earlier. The chart below illustrates this.
The course of a crisis begins with the first phase: the stakeholder crisis. During this phase, conflicts typically arise at the shareholder or executive level regarding the company’s future direction, the allocation of profits, a company valuation in the context of succession planning, or other issues. This may result in delayed decisions that hinder day-to-day operations and ultimately lead to a strategic crisis.
