Topical issues of diagnosing of enterprise bankruptcy

Table of contents: The Kazakh-American Free University Academic Journal №9 - 2017

Urazova Natalya, Kazakh-American free university, Kazakhstan
Litvinenko Victoriya, Ust-Kamenogorsk branch of Plekhanov Russian University of Economics, Kazakhstan

An important problem in a modern, dynamically developing economy is the prevention of bankruptcy, its timely diagnosis and elimination. The activities of many enterprises and companies are more financed by borrowed funds, so it is very important to have a mechanism for diagnosing the stability of the debtor's enterprise, both for managers of the organization and for regulating state bodies.

In the context of transformation of economic relations, a high degree of uncertainty is particularly characteristic, which significantly increases the risk of bankruptcy of enterprises as a result of the impact of both external and internal economic factors. Many commercial enterprises of various forms of ownership have been on the verge of bankruptcy over the past ten years. In this regard, the problem of forecasting the possible bankruptcy of enterprises is extremely topical today, that is, the question of choosing a mechanism that allows to predict the bankruptcy of an enterprise is urgent in the near future [1, p. 78].

The relevance of the research topic is due to a number of reasons:

- first, at the present time the key problem in the Kazakhstan economy is the nonpayment crisis, and a good half of the Kazakhstani enterprises should have been declared bankrupt for a long time, and the received funds are redistributed in favor of efficient production, which would undoubtedly contribute to the improvement of the Kazakhstan market;

- secondly, in conditions of mass insolvency of economic entities, special measures are taken to prevent bankruptcy in crisis situations, as well as measures aimed at restoring the solvency of the enterprise and stabilizing its financial condition.

From the point of view of financial management, bankruptcy characterizes the realization of catastrophic risks of the enterprise in the process of its financial activity, as a result of which it is unable to satisfy, in due time, claims from creditors and fulfill obligations to the budget.

The essence of bankruptcy consists in the absence of money from the enterprise to pay for its obligations, this is a state of financial insecurity, that is, an absolute breakdown in production and economic activities, which is the cause of the ruin and liquidation of the enterprise.

The preconditions for bankruptcy are manifold - this is the result of the interaction of numerous factors, both external and internal [3, p. 92].

External factors include:

- economic: the crisis state of the country's economy as a whole; general decline and unprofitableness of production; the emphasis of public policy on fiscal function; imperfection and instability of financial and credit policy, manifested in the growth of interest rates and inaccessibility of loans for most enterprises; errors in economic regulation, leading to devaluation of the national currency and exacerbating inflation; instability of the financial system, rising prices for resources, changing market conditions, insolvency and bankruptcy of partners;

- socio-political: political instability in society; lack of qualified specialists due to lack of quality targeted retraining; low level of income of the population, affecting the amount of effective demand for goods and services; low fertility;

- information: lack of experience in crisis management; ineffectiveness of anti-crisis regulation due to imperfection of the current system of accounting and reporting; lack of quality information on market conditions;

- market: the lack of a system of regulation of various types of economic activity that is adequate to market conditions; underdeveloped business infrastructure; low level of competitiveness of domestic products; competition with foreign producers; non-compliance with legal and ethical standards of conduct in business; the severance of economic ties with neighboring countries and, accordingly, between enterprises; loss of sales markets;

- legal: imperfection and inconsistency of the legislative framework in the field of economic law, antimonopoly policy, business;

- scientific and technical: reduction of the scientific and technical potential of enterprises due to lack of funds to ensure its functioning [5, p. 43].

Internal causes of the crisis:

- material and technical: weak security with a high level of moral and physical depreciation of fixed assets; lack of funds for their renewal; shortage of working capital and their low turnover; a decrease in the efficiency of the use of material and technical resources and the production capacity of fixed assets;

- organizational: inefficiency and irrationality of the organization of the production process; lack of financial transparency of costs, and as a consequence, the inability to manage them; high production costs; the lack of a systematic approach to the management of the enterprise and the uncertainty of the strategic outlook for its development; low quality of managerial decisions; failures in the supply of material resources due to unreliability of suppliers; violation of payment discipline by buyers; rapid and uncontrolled expansion of economic activity;

- socio-economic: manipulation of the assets of the enterprise as a result of distortion of their current value under the influence of inflation and revaluation; lack of marketing information due to "opacity" of business; attraction of borrowed funds in the turnover of the enterprise on disadvantageous conditions, which leads to the washing out of own funds, a decrease in the profitability of economic activity and the ability to self-finance.

As a rule, bankruptcy is a consequence of the combined effect of internal and external factors. In a real economic process, various factors can lead to enterprise bankruptcy that intensify or weaken mutual influence.

The bankruptcy of inefficiently operating and financially weak companies as a tool for the rehabilitation of the economy as a whole is an indispensable element of structural adjustment. In this regard, the problem of the formation of a bankruptcy mechanism, the inevitable costs of this process are mandatory attributes of the economy of any country. The task of determining the degree of bankruptcy risk is actual both for the owners of the enterprise and for its creditors, therefore any scientifically grounded methods for assessing the risk of bankruptcy are of interest [6, p. 74].

The task of management is to timely recognize and ensure the adoption of such management decisions that will help reduce the impact of negative processes on the state of the facility. Let not to completely prevent the crisis, but at least partial localization of its most significant manifestations. The content and results of diagnostic studies will lead to the conclusion that they are one of the most universal means of obtaining reliable information about the state and deviations in the development of the object under study. They are especially important in the management of socio-economic systems, since they can identify in advance, prior to the appearance of negative trends in any internal or external processes covering their activities, the moments that give rise to such tendencies, impulses and take appropriate measures to eliminate them or reduce the degree negative impacts. The greatest effect of conducting diagnostic studies is achieved if they have a complex progressive nature.

Assessment, forecasting of insolvency and probability of bankruptcy risk are of interest not only for shareholders, creditors, suppliers, customers and others in choosing the most reliable and promising business partners, but also for self-assessment, which allows us to recognize signs of deterioration, react more promptly to them and more likely to avoid or reduce the risk of bankruptcy by timely taking appropriate actions for out of this situation.

In the understanding of bankruptcy, not only its causes are important, but also the consequences for the enterprise in the system of its financial management. Correctly organized financial management can weaken the influence of insolvency (bankruptcy) and achieve restoration of the viability of the organization in order to preserve it. A renewal of the organization may happen while retaining owners and managers or restructuring the organization (merger, separation, affiliation, separation). Under other conditions, bankruptcy can lead to the complete liquidation of the enterprise; to a change of ownership and a restructuring of the process of its functioning.

The consequences of financial insolvency and bankruptcy are closely related to two factors: its causes and the ability to manage the processes of crisis development [7, p. 56].

The consequences of financial insolvency and bankruptcy for an enterprise can lead to abrupt changes or a soft, long and consistent exit from it. Crisis changes in the development of the enterprise are long-term and short-term, qualitative and quantitative, reversible and irreversible.

The different consequences of financial insolvency and bankruptcy are determined not only by its nature, but also by the nature of the crisis management that can either soften or aggravate the crisis. The management capabilities in this respect depend on the goal, professionalism, management skills, motivation, understanding of causes and consequences, responsibility [3, p. 115].

Negative consequences of financial insolvency and bankruptcy for the enterprise:

- a significantly «tarnished» reputation: even if the enterprise has successfully overcome the crisis, its reputation in the eyes of customers, suppliers and other users may be shaken. Usually reputation is ruined not only by the enterprise, but also by people who were responsible for making important decisions during the crisis. The latter can be permanently branded with labels such as "unable to solve complex problems" or "the one that caused the crisis";

- a decrease in the level of trust, the degree of its reliability in the eyes of customers: trust and reliability are key elements of the company's reputation. Create and form them is difficult, lose is easy. It takes a long time to prove to employees, customers, sellers that the enterprise is reliable, that it can be trusted. Unfortunately, if you do not manage such crises, then the image of the company can be destroyed within a few days or even hours, and the restoration of lost confidence in the eyes of customers will take years and years;

- loss of employee loyalty: an unmanageable crisis is most often threatened by a rapid loss of loyalty and employee support. Financial insolvency and bankruptcy shows the staff the level of leadership preparedness, ability (or inability) to manage in difficult situations. During the crisis, employees closely monitor the actions of their leaders and evaluate them;

- decrease in sales: the exit from financial insolvency and bankruptcy is always accompanied by a fall in sales. Consumers are likely less be attracted by the products and services of such a company, and they will easily reorient to its competitors. Even if they retain a preference for the goods or services of the enterprise, they may have a prejudice that the management is too busy struggling with the crisis and it is not up to customer satisfaction;

- falling profits: profits always fall when the enterprise faces a crisis: inevitably lower incomes and rising costs, since anti-crisis measures require significant additional resources. If the crisis situation can not be quickly taken under control, a drop in profits may complicate it. Such a threat often requires precautionary measures. The costs necessary to minimize the damage from the crisis may include attracting specialists in crisis management or public relations (public relations - PR), organizing conferences, sending letters to consumers by mail, videoconferencing, making phone calls, organizing special meetings with consumers, using different means of communication, etc .;

- decrease in the level of labor productivity of personnel: during and after financial insolvency and bankruptcy, the level of collective labor productivity decreases. However, the crisis situation can also be used to mobilize the will and efforts of employees aimed at overcoming them. An important condition for this is the presence of leadership qualities in the manager (manager), the ability to restructure the system of expectations and motivation of personnel, organize resistance to rumors, provide greater information to the staff;

- focusing management on the ways out of the crisis: this is a necessary element, but we must bear in mind that it is inevitable to reduce attention, time and resources directed to other activities that maximize profits. To overcome this difficulty helps the management understand that a successful business should always concentrate on actions that bring profit and success to the enterprise;

- changes in the composition of top-level management: during the period of financial insolvency and bankruptcy, presidents of companies are often deprived of their posts by decision of the board of directors. The executive vice president, vice president, directors, department managers feel vulnerable enough, many of them begin to search for new jobs, and put themselves out of their responsibilities. Training in crisis management reduces nervousness, ensures more efficient work of top management personnel, as it provides an understanding of the psychological causes of feelings of uncertainty and uncertainty that covers a significant part of managers;

- changes in the range of goods or services of the enterprise: in conditions of financial insolvency and bankruptcy, enterprises often produce unplanned and expensive changes in the products and services they offer on the market. This can be a complete change in the marketing strategy for promoting products and services or more drastic changes, such as, for example, breaking down a brand or leaving a particular market segment;

- change of the name of the enterprise: such a radical measure is applied if the damage caused by financial insolvency and bankruptcy does not allow it to continue to function successfully in the future; it is necessary to form an absolutely new image, a new identity [1, p. 65].

But sometimes financial insolvency and bankruptcy can be beneficial for the enterprise - it is possible when it is effectively controlled. Let's try to systematize such situations from the point of view of the advantages:

- growth of popularity and recognizability of the name of the company (enterprise) and its brands. The firm, faced with a crisis, becomes the object of close attention of competitors, government bodies, distributors and the media. It is easier to achieve such a positive effect when the enterprise is a "victim" of the crisis, and not the "culprit" of the incident (for example, it stops working because of natural disasters such as a hurricane or flood). In such a situation, it is much easier to enlist the support of customers, sellers, employees, consumers than when the crisis is caused by management mistakes [3, p. 59];

- the opportunity to demonstrate the management competence of the company's management. Financial insolvency and bankruptcy provide an excellent opportunity to show in good or bad light the manager of the highest rank, responsible for resolving the problems of the organization;

- new opportunities for the growth and development of managers. During financial insolvency and bankruptcy, some managers not only improve their reputation, but also advance through the ranks. This is achieved in several ways: a quick reaction to the problem and clear actions aimed at its immediate solution; demonstration of unshakable confidence (but not arrogance) in their own rightness, perseverance in carrying out their plan for overcoming the crisis; participation and compassion for people affected by the negative consequences of the crisis (if the company complicates the life of competitors, its head apologizes for the inconvenience); immediate implementation of changes in the organization, ensuring that the crisis will not happen again or will proceed in a milder form; confidence that the influence of the manager is significant (this does not mean that you have to deal with everything yourself, but understand that the influence of the manager is growing as the problem is resolved); assuming responsibility and ultimate guilt (if this, of course, is necessary);

- improvement of relations. Crisis situations do not always cause insurmountable problems, skillful management of financial insolvency provides great opportunities for strengthening ties and normal stable relations with those whose help the enterprise expects. However, this will happen only if the leadership has previously won their location and trust and will adhere to the following tactics: discuss the situation, explain in detail the expected actions from them and justify their necessity; Demonstrate gratitude for their help and support; keep them informed, provide the necessary information in order to maintain confidence in the favorable outcome of the crisis; maintain friendly relations with them after the crisis;

- carrying out the necessary changes. Some enterprises need a restructuring to continue their existence. It also happens that the people who lead them do not realize that the problem really exists, or simply do not want to invest the time and effort to eliminate it. They often hope that the problem will disappear by itself. In this case, it is very likely that in the later stages of the development of the crisis it will be necessary to take drastic measures [2, p. 82].

Thus, bankruptcy is an inevitable phenomenon of any modern market, which uses insolvency as a market instrument for redistributing capital and reflects the objective processes of economic restructuring. Bankruptcy is, as a rule, a consequence of the combined effect of internal and external factors. Overcoming the crisis requires the development of special methods of enterprise management at both macro and micro levels. As the world experience shows, the anti-crisis process of bankruptcy management in a market economy is a controlled process, therefore the objective need to bring the production structure to real solvent demand is the main link in the bankruptcy system.


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Table of contents: The Kazakh-American Free University Academic Journal №9 - 2017

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