A business crisis has four stages: imbalances and inefficiencies, economic losses, insolvency and failure.

The first stage “imbalances and inefficiencies“, associated with the embryonic crisis, coincides with the occurrence of an initial negative signal, not yet an expression of first dysfunction, and is called incubation.

The second stage “economic losses“, is identified with the maturation of the crisis, economic losses occur and, consequently, the reduction of risk capital. At this stage, despite the negative economic performance, typically the financial performance is not yet compromised.

The third stage, “insolvency“, coincides with the spread of business dysfunction: at first the enterprise tends to engage in default behavior toward suppliers, as well as debt losses related to social contributions and taxes. Subsequently, the enterprise tends to lose bargaining strength, the payment extensions granted by suppliers are reduced and, consequently, a self-financing capacity, as well as the trust of customers is lost.

The fourth stage “bankruptcy” is the acute crisis, caused by a generalized dysfunction, which injures, in an obvious way, more or less all stakeholders of the enterprise.
The possible manifestation is the transition from insolvency to bankruptcy.

For each stage there is a solution.