Seven Types of Crises Your Company Can Face

Seven Types of Crises Your Company Can Face

Many companies have suffered in recent years because of bankruptcy, crisis, and other business problems. They are commonly referred to as business or enterprise crises. There are countless types of crises that could happen in a company. If you know what kind of crisis is ahead, you can prepare the countermeasures beforehand. Here are the types of crises that you can encounter in your company:

Financial Crisis

It is the most common form of crisis. The company’s financial status becomes so poor that it cannot repay its debts to creditors or suppliers and cannot sustain its day-to-day operations. The company under a financial crisis usually has the following types of problems:

  • Accounts receivable problem: Sometimes, the buyer’s failure to pay is caused by his business problem. For example, if their credit lines are limited because their companies were involved in financial crises, they will not be able to pay you. Practices of returns and exchanges create an accounts receivable problem. If sales fall significantly due to business problems, it will also cause account receivables to increase.
  • Supplier default: There is nothing worse than supplier default because it directly affects the production process and damages the reputation of your company. As a result, suppliers stop supplying materials to companies in crisis for fear that they might suffer the same fate as the troubled firm.
  • Guarantor problem: Sometimes guarantors are forced to provide guarantees due to business problems experienced by their own companies. When the guarantors fall into a financial crisis themselves and cannot afford to cover the payment of their customers’ debts owed to creditors and suppliers, they will stop extending further credit lines. They will even refuse to pay what they owe you, affecting your business.

Market Crisis

This happens when product quality, customer service, or other kinds of problems damage the market reputation of a company. Afterward, customers begin refusing orders and even turn away from the products which used to be popular.

This is an example of a market crisis being managed: In March 2010, Apple publicly apologized for quality-related problems with its iPhone 4 and offered customers a free case designed to prevent the phone from losing reception when being held.

Personnel Crisis

This crisis happens when the company cannot properly manage its staff due to frequent turnover in top management, changes in the work environment and workplace rules, relationships with labor unions, etc.

A management crisis may be related to this, and it happens when a company’s management fails to manage its business operations properly. The company’s current managers are usually responsible for this problem, with some cases being brought about by changes in top management.

Legal Crisis

legal crisis

This usually occurs when a company gets sued by local or international agencies and organizations for environmental pollution and other problems caused by its operations. The lawsuit can lead to huge fines and even closure of the business.

In 1995, chemical company Monsanto was ordered to pay almost $200 million for the contamination of a small town in Alabama. The health and safety lawsuit filed by local residents led to an out-of-court settlement; however, it is still seen as one of the worst legal crises experienced by a US firm.

Product Crisis

The production costs get so high that it eventually damages product quality and consumer confidence toward products manufactured by the company. This results in loss of market share and ultimately bankruptcy if no action is taken.

This crisis happens when the company is unable to manage its budget for product development. As a result, the products are not competitive enough to win back customers who have turned away from their products. Even worse, there might be no new products being produced.

Public Relations Crisis

When businesses cannot handle criticisms or provide satisfactory answers to any problems discovered by the media and consumers via social networks, they usually suffer badly in terms of reputation. This crisis can also happen when companies fail to communicate properly with stakeholders such as employees, suppliers, shareholders, and government agencies. This can lead them to experience financial losses, which can further lead to bankruptcy if no action is taken.

Technology Crisis

It happens when the company cannot maintain its technological competitiveness due to a lack of funds or skills needed for automation after using old-fashioned production equipment.

A good example is an archive storage problem which happens when the company is unable to manage its data storage system, leading it to experience information loss. It is usually caused by outdated equipment or a lack of funds for purchasing new equipment. But there are archive storage services that can help you store huge amounts of data without having to purchase equipment since they’ll be storing those data for you.

How can you avoid this?

The best way to avert a crisis is to implement countermeasures before it even occurs, but what will you do if there are already warning signs? Here are some possible methods.

Before a crisis happens:

  • Use technology to monitor the market and the outside world for any signs of a coming crisis.
  • Improve internal and external communications by listening to what employees, customers, and other stakeholders have to say about your business and putting yourself in their shoes by imagining how you would react if you were them.

During a crisis:

  • Prepare well ahead of time because there is still enough time to act by preparing an effective plan containing legally binding articles and documents that will prove in court that the business is in a financially healthy situation.
  • Keep a record of all your financial transactions.

After a crisis:

  • Invest in technology and infrastructure to keep your company efficient.
  • Build a good reputation through proper communication with all external parties such as customers, government agencies, etc. It’s also important to emphasize that you’re taking action to resolve the situation by updating stakeholders about any progress or changes made.

When a crisis hits, the organization has to have a good plan for dealing with or avoiding such events. There are many types of crises that can happen. Even though they may seem like unfortunate situations, it’s best to be prepared when one strikes.

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