The life expectancy of a company depends on the entrepreneurial decisions that the manager makes. Such a decision is a choice made by the organizers of the company within the framework of their duties, rights, competencies and authorities.
This is the result of a process with a certain duration and structure of actions. An entrepreneurial decision is made through a comprehensive analysis of the current situation. It is aimed at achieving the specific goals of the organization. The decisions of the management, founders and employees of the company are made, not based on their personal needs, but in order to develop the company and eliminate its current problems. If a person acts as an employee of the organization, then the consequences will affect everyone, from leadership to ordinary employees.
Sometimes the strategic steps of the bosses can not only change the fate of an individual company, but also affect the socio-economic situation in the city and even in the whole region. Unlike a private person, an entrepreneur must make a decision through a professional, complex, formalized, responsible, analytical and combined process.
The choice can be both successful and erroneous. But mistakes can be minimized by an adequate and timely assessment of the situation. People tend to want to know the future, especially when it comes to entrepreneurial activity. However, in its implementation, one must be prepared not only for success, but also for a possible collapse - bankruptcy. For the entrepreneur, economic failure is a failure when the partners in the company are forced to use legal means to repay debts.
In this article, we will consider the concept of bankruptcy itself, talk about its types, signs, stages, factors influencing it. So let's get started.
Definition
Bankruptcy is the documented and recognized by the arbitration court inability of the debtor (business entity) to satisfy claims made by creditors on monetary obligations.
Bankruptcy is also understood as the procedure applied to the debtor and aimed at assessing its financial situation and developing measures to improve it. If the application of these measures is considered impossible or impractical, then they will find the most optimal solution to meet the interests of creditors.
In world practice bankruptcy proceedings (insolvency) applies to both individuals and legal entities.
Types of Bankruptcy
The characteristic of bankruptcy is complemented by its types. In financial and legislative practice, there are 4 types of bankruptcy:
1. The real. This type of insolvency is characterized by a complete lack of opportunity for the company to restore its solvency and financial stability in the near future due to significant capital losses.
2. Technical. In this case, the bankruptcy of the enterprise is caused by a large delay in the return of its receivables. At the same time, its size exceeds the amount of the company's loans, and the amount of assets is much larger than the volume of financial obligations. If the crisis management of the company, including its reorganization, is carried out by professionals who are well aware of the order of bankruptcy of enterprises, then technical insolvency will never go into the legal plane.
3. Intentional. The definition itself speaks of the deliberate creation by the owner or director of the company of its insolvency.Revealed and proven facts of intentional bankruptcy are prosecuted.
4. The fictitious. It is characterized by a knowingly false declaration of insolvency by the company. The main goal of this action is mislead creditors and get from them installments (deferment) of payment or a discount on the amount owed. Such actions are criminally punishable.
Signs of bankruptcy of the enterprise. First group
This includes indicators containing possible financial difficulties and the likelihood of insolvency in the near future:
- regular significant losses, expressed in a decline in production, chronic loss ratio and a reduction in sales;
- low liquidity ratios and their further decline;
- increase to the dangerous borders of the share of borrowed capital;
- decline in production potential;
- a systematic increase in the duration of working capital;
- the presence of excess reserves of finished products and raw materials;
- adverse changes in the database of orders;
- deficit of working capital of the company;
- chronic delay in receivables and payables;
- the use of new financial flows on unfavorable conditions;
- a fall in the value of the company's shares.
The second group of signs
The second group includes indicators whose negative values are not a reason to consider the current financial condition as critical, but signal the likelihood of a sharp deterioration in the near future. And if you do not take effective measures, then the result will be one - the bankruptcy of the enterprise. These signs include:
- excessive dependence of the company on any type of asset, type of equipment, specific project, market or raw materials;
- irregular work, forced downtime;
- loss of major counterparties;
- lack of investment;
- underestimation of technology and equipment updates;
- ineffective long-term contracts;
- loss of experienced managers from the management apparatus, etc.
Bankruptcy stages of an enterprise
1. Hidden. At this stage, an inconspicuous drop in company value begins due to adverse trends (internal and external). That is why it is so important to keep special records on the basis of which an assessment of the bankruptcy of an enterprise can be made. It will help to predict the prerequisites for lowering prices and apply leverage for improvement in the form of scientific and technical resources and qualified personnel.
2. Financial instability. At the 2nd stage, monetary difficulties begin and early signs of bankruptcy appear. Such as sudden changes in financial statements and balance sheet structure. Any transformation of balance sheet items is undesirable.
It is worth worrying if there is a sharp decrease in the amount of money in the account (this is especially true when it comes to bankruptcy of a municipal enterprise), an increase in receivables and payables, and a drop in sales volumes. It is urgent to solve problems or to attract specialists for this, otherwise the next stage will come.
3. The apparent bankruptcy. The company is not able to pay debts on time, and this becomes obvious from a legal point of view. Bankruptcy of an enterprise is expressed in inconsistency of cash flows (outflow and inflow of money). A company can go broke both during industry growth (boom) and during a recession. With the rise of the industry, competition increases, and in a recession, the pace of development decreases. That is, each individual company needs to fight for its own growth in any market circumstances.
Influencing factors
Factors affecting the insolvency (bankruptcy) of an enterprise are divided into internal and external.
Intrinsic factors
1. Insolvent clientele.
2. Low sales due to poor organization of marketing activities.
3.Shortage of working capital (for this reason, a bankruptcy of a unitary enterprise often occurs).
4. Attraction of borrowed funds on unfavorable conditions, etc.
External factors
1. Economic (inflation, decline in production, etc.).
2. Political (foreign economic policy of the country, instability of society, etc.).
3. Demographic (composition of the population, size, etc.).
4. Strengthening international competition.
As a rule, bankruptcy of an enterprise is a consequence of the combined influence of external and internal factors. In countries with developed market economies and a stable political system, the ruin of business entities is 70% related to internal factors and 30% to external ones.
Conclusion
Very rarely bankrupt in a short period of time, although unsuccessful major deals can seriously undermine the financial situation of even a very stable company. Typically, the inability to pay off debts grows gradually, transforming from the routine episodes of the life of the company into a daily threat.
To avoid ruin, an objective analysis of the state of affairs of the company is necessary. That is, we need a diagnosis of bankruptcy of the enterprise. It is a financial analysis system that can identify the parameters of the crisis development of the company. If its results are disappointing, you should draw up an action plan to remove the company from a potential crisis.
