There are times when any business can get into crisis. And there are many reasons for such a crisis, some outside your control and some unavoidable. However, when a crisis hits it’s important that a leader knows what to do.

This article explores, in a simple and direct way, how a leader needs to think about a crisis, and the immediate steps that should be taken to deal with any crisis effectively.

Avoiding the Red Tide: Escaping a Financial Crisis in Business

Avoiding the Red Tide: How to Escape a Financial Crisis in Your Business

Imagine for a moment that you are involved in a motor accident. Luckily, you survive — you’re not even injured. Beside you, another passenger lies on the road in agony with a serious broken leg, bleeding steadily.

You know that broken leg is going to need splinting, and crutches will eventually be needed. But that is not where you place your attention. The immediate issue is to stop the bleeding, because if you don’t, any discussion of splints, casts, or crutches will be merely academic.

That is the nature of crisis. The normal rules get suspended, and all energy and attention must become focused on the immediate situation. Only when the immediate danger is addressed do you have the luxury to deal with the more fundamental issues underneath.

The Cause of the Crisis Can Wait

A crisis can be caused by either external or internal factors. If you’re driving on a wet road and suddenly go into a spin, the cause is internal — you hit the corner too fast. In the case of something like a sudden market disruption or global event, the immediate cause is external. Something happened that was beyond your control.

In business, the sudden discovery that you don’t have enough cash to cover payroll is a crisis, and it could stem from either source. Perhaps a major external event caused your sales to suddenly stop while costs continued. Or perhaps you simply weren’t tracking your cash flow closely enough and didn’t take appropriate action early on.

Here’s the key insight: the question about the cause of a crisis is actually academic — at least until you’re through the worst of it. If you spin your car on a wet road, it doesn’t matter whether oil on the surface caused it or your own speed. The immediate priority is to regain control before things get much worse.

Understanding the cause of a crisis is, of course, important for prevention. Creating new, long-term solutions matters too. The trick is to put those discussions on hold long enough to respond to what’s happening right now.

In Chinese, the word for crisis (危机) combines the concepts of “danger” and “opportunity.” The opportunity refers to everything you can learn and the fundamental changes you can make to come out stronger. The danger refers to the fact that something is happening right now that demands your immediate attention.

The Steps to Deal with a Business Crisis

Personal experience can be a great place to explore how to deal with more complex situations. Think about a crisis you’ve personally been through — a close call while driving, an emergency that required split-second decisions. When you reflect on how you survived, you’ll recognise the same pattern every time.

Consider a group of soldiers suddenly caught in an ambush, surrounded by the enemy on all sides. Their only hope for survival is to break out. Even one second of hesitation means death. To do this, they must all focus on one single point and break through together. Only once they’ve achieved that do they have the luxury to decide what comes next.

The steps to surviving any crisis follow a clear sequence.

Step 1: Size Up the Situation

The first thing you must do in any crisis is size up the situation. What is going on? How serious is it? How much time do you have? The answers to these questions focus your mind on what to do next.

In a business context, recognising a crisis isn’t always straightforward. If someone has stolen your best customers or your market has suddenly disappeared, it’s fairly obvious. But a subtle shift in the cash flow balance that hasn’t yet shown up in the books can be much harder to spot. Finding out the bank won’t support you anymore is, of course, a very loud signal.

The biggest mistake at this stage is underestimating the consequences. Underestimation leads to action that is too little, too late. Rapid and honest assessment of the seriousness of your situation is the critical first step.

Step 2: Decide What Action to Take

Immediately upon recognising the crisis, you must decide what outcome you want. In a case of serious injury where someone is bleeding, there is no choice — stop the bleeding. The only question is how.

The same applies in business. If the crisis is a cash flow emergency, the decision is clear: stop the cash from draining. The strategic question becomes how you’re going to achieve that, not whether it needs to happen.

Step 3: Act

Once you’ve decided on the action to take, you do it. No hesitation. No second-guessing. Act.

Step 4: Review and Adjust

Once you’ve acted, check whether the action achieved your desired outcome. If it didn’t, you’re still in crisis and need to reevaluate before taking further action. This feedback loop continues until the immediate danger is resolved.

Managing a Crisis as a Team

Many of the crises we face in business involve groups of people, and getting groups to act effectively is difficult at any time. A crisis can make cooperation even harder.

With any crisis that involves a group — whether it’s a team, a company, or an entire organisation — the most important rule is: communicate, communicate, communicate. There is a critical need for information throughout the organisation to address any crisis effectively. And to be most effective, that information needs to be channelled in the right way.

What to Communicate: A Four-Part Framework

First, state what is happening. It may seem obvious, but openly articulating the situation to your organisation is essential. People on the front lines are frequently already aware that something is wrong — they see it reflected in daily problems and in decisions being taken (or not taken) by senior management. When leadership stays silent, it breeds cynicism and helplessness. On the other hand, some people in the organisation may have no idea there’s a problem at all. By openly acknowledging the situation, you address both groups: those who already know feel their leaders are in control, and those who didn’t know receive a strong wake-up call.

Second, explain why it matters. Saying “we have a cash flow crisis” probably won’t motivate people working throughout the company. Leaders need to connect the crisis to real personal consequences. The company might be acquired and managed in a way nobody likes. Worse still, it could be forced to close, meaning nobody has a job. Making the stakes real and personal drives action.

Third, define what comes next. Once the organisation’s attention is focused, senior leadership must answer the question clearly: what is the one major goal that has to be achieved right now? “Stop the bleeding,” “block the competition in Market A,” or whatever the imperative is. People need clarity, and they are looking to leadership to provide it.

Fourth, assign who does what. Department heads translate the big message into specific actions for their teams, ensuring regular progress reports flow back to senior leadership for coordination across the organisation. This is the same chain-of-command approach used on a submarine dealing with a crisis at sea — every person on board has an assigned task, and team leaders assign tasks based on the overall goal set by the commander.

Beyond the Crisis: Don’t Assume the Problem Is Solved

Once a crisis is resolved in the short term, it can be a fatal mistake to assume everything is fine. Often, the process of solving the crisis creates conditions for even greater problems in the future. It is up to senior leadership to use a crisis as a starting point for deep analysis of the fundamentals of the business, and to explore changes necessary to prevent a similar situation from arising again.

The Bottom Line

When met with decisiveness, action, and effective communication, most business crises can be overcome. This requires courage and commitment from leadership, but the payback is very often worth the effort. Beyond the immediate crisis, however, it’s essential to explore the more fundamental reasons for what happened in the first place — and to begin changing the organisation so it doesn’t happen again.