Suspecting a company is in crisis

Early warning signs

The following may indicate that a company is in, or approaching, crisis:

General indicators

  • sector decline relevant to the company
  • reputational decline
  • unsuccessful acquisitions
  • disposals of business units
  • loss of major clients/customers
  • exposure to failed institutions
  • possible merger discussions
  • rumours of financial problems

Specific financial issues

  • falling profit and revenue
  • re-financing or increase in new funding
  • bad business or balance sheet
  • pension deficit
  • unsustainable debt
  • profit warnings
  • significant drop in share price
  • ratings downgrades
  • poor annual results
  • no dividends being declared
  • large or recurring loss announcements
  • Credit Default Swap price spike

Changes in behaviour

  • relaunches or rebranding
  • decline in new projects
  • late and/or erratic payments
  • erratic, short and/or missed deliveries
  • interruptions to service
  • irregular purchasing patterns
  • breach of financial covenants
  • disputing invoices or performance levels
  • finding reasons to shed contracts eg by alleging breaches
  • an increase in formal communications and a change in tone, which may indicate an attempt to create a paper trail proving breach of contract
  • an increase in litigation

Personnel changes

  • a change in management structures eg more senior personnel involvement, new names appearing
  • departure of key financial personnel
  • redundancies
  • reduction in staff benefits
  • decline in staff morale

Questions to ask

If you suspect a company is in crisis, you should ask:

  • which lenders are providing finance?
  • who are the company’s lawyers?
  • who are the company’s accountants and/or auditors?
  • what does the balance sheets look like?
  • how much debt is involved?
  • are there pension deficits?
  • where is the company’s geographical spread?
  • is the company subject to a winding-up order or winding-up petition?

If you suspect a company is in crisis, you should also consider the items set out in the pre-insolvency considerations.

Where to look

If the company is in trouble but not yet insolvent, its staff are still an invaluable source of information, and gossip can often indicate that a company is approaching crisis. Your own records will indicate if there have been payment or delivery issues, or unexpected changes in behaviour.

Some information, particularly on listed and incorporated companies, may be available in the business press. 

There are jurisdiction-specific resources that will be useful, such as company registries and local insolvency courts. There are also the following useful resources that are applicable regardless of jurisdiction:


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