Reacting to serious difficulties
Last update
Any business may find itself in serious difficulties at one time or another. This is particularly the case if the business was unable to identify and react appropriately to typical indicators of underperformance which are usually the precursor to serious difficulties.
The major difference between underperformance and serious difficulties is the speed at which the business must react to remedy the situation. When a business is in serious difficulties, recovery measures must be implemented urgently whereas in the case of underperformance, longer-term recovery measures can be implemented. The solutions available are therefore not the same.
Who is concerned?
Any natural or legal person carrying out a commercial activity can find that they are in serious difficulties.
The following types of business are particularly exposed to financial and commercial difficulties (non-exhaustive list):
- young businesses;
- single-activity businesses;
- businesses operating in highly-cyclical fields;
- businesses operating in fields characterised by rapid technological change (risk of product offering becoming obsolete);
- businesses that have undergone an unexpected change in the management team;
- businesses that have suffered an unforeseen loss of key personnel;
- businesses in a sector that has been hit by negative economic conditions.
How to proceed
Responsiveness and dialogue
If a business finds itself in serious difficulties, it is often because indicators of underperformance were ignored or misinterpreted. The recovery measures available in the case of underperformance are therefore often no longer relevant because when a business is in serious difficulties, a rapid reaction is vital.
The business manager must be able to swiftly identify and correct a situation of serious difficulties as soon as it arises. In such a situation, open and transparent dialogue with creditors is essential.
The general indicators listed below are valid for all business types and can be used to detect and react rapidly to a situation of serious difficulties.
This list is not exhaustive and it is advised to consult specialists in order to conduct an analysis of the business and implement the necessary measures for the recovery of the business.
In particular, businesses may:
- contact the House of Entrepreneurship, which offers a coaching and support programme for businesses in serious difficulties; or
- request financial aid or a State guarantee with a view to economic recovery.
Commercial aspects
Delivery problems with suppliers
A business may find itself in serious difficulties if its suppliers react to rumours concerning the health of the business. Suppliers may refuse to deliver on credit and only provide supplies in return for payment in advance.
In this case it is important to contact suppliers immediately so as to clearly explain the business's actual situation and the recovery measures implemented, in order to prevent the spread of unfounded or inaccurate rumours.
Sudden increase in customer complaints
A business may find itself in serious difficulties if the volume of customer complaints rises suddenly and unexpectedly.
A rapid response is necessary in order to identify the underlying reasons and thereby avoid complaints from other customers.
Sudden decline in commercial activity
Declining sales must be detected quickly in order to identify the reasons for the decline and react appropriately:
- adaptation of the service offered;
- change in sale price levels, etc.
Sudden increase in purchase prices
As with sales, purchases must be closely monitored. Depending on the situation, the response to rising purchase costs could involve:
- a change of supplier;
- an increase in the sale price.
In particular, the business's reaction must take into account the quality of the product or service provided and the potential impact of fluctuations in quality or prices on the order book.
Organisational structure and human resources
Loss of key personnel
The departure of employees considered key to the business's success must be rapidly and effectively compensated for in order to avoid undermining the business.
High staff turnover
In the event of excessive staff turnover, the business must try to understand and correct the causes of departure (working atmosphere or conditions, salaries, highly-competitive labour market, etc.).
Breakdown in communication
Similarly, the sources of any communication problems between the different areas of the business must be rapidly identified in order to avoid undermining the business.
Financial control and management supervision
Negative cash flow/inability to pay
An inability to pay is the clearest and most obvious indicator of serious difficulties.
Active dialogue with creditors must be established in order to draw up a recovery plan:
- extending payment terms;
- increasing temporary credit lines, often in return for additional guarantees and a business plan including receivable debts (types, amounts, duration, etc.);
- renegotiating loan repayment schedules, etc.
Efficient debt collection management is another means of rectifying such a situation.
Banking restrictions
A business in serious difficulties may also find that its bank:
- refuses to renew or extend existing credit lines;
- imposes higher-than-normal interest rates;
- requests additional guarantees.
In such a situation, open and transparent dialogue with banks is essential. Frequently, the situation can only be resolved on presentation of a concrete and realistic plan describing how the business intends to extricate itself from serious difficulties.
If these measures prove unsuccessful, certain measures of last resort may be taken to avoid filing for bankruptcy:
Who to contact
House of Entrepreneurship
-
House of Entrepreneurship
- Address:
- 14, rue Erasme L-1468 Luxembourg Luxembourg
- Phone:
- (+352) 42 39 39 - 330
- Email address:
- info@houseofentrepreneurship.lu
Closed ⋅ Opens tomorrow at 8.30
- Monday:
- 8.30 to 17.00
- Tuesday:
- 8.30 to 17.00
- Wednesday:
- 8.30 to 17.00
- Thursday:
- 8.30 to 17.00
- Friday:
- 8.30 to 17.00
- Saturday:
- Closed
- Sunday:
- Closed
'Contact Entreprise' at the Chamber of Skilled Trades and Crafts - Luxembourg
-
Chamber of Skilled Trades and Crafts 'Contact Entreprise' at the Chamber of Skilled Trades and Crafts - Luxembourg
- Address:
-
2, Circuit de la foire internationale
L-1347
Luxembourg-Kirchberg
Luxembourg
B.P. 1604 / L-1016
- Email address:
- contact@cdm.lu
- Website:
- http://www.cdm.lu/
Related procedures and links
An error occurred
Oops, an error has been detected during your form processing.