In today's business environment, a financial crisis is rarely a sudden catastrophe. In most cases it builds up gradually and reveals itself through a system of early warning signs: reporting metrics and contract terms. Many owners are later surprised that a company profitable yesterday is on the brink of bankruptcy today. The answer is simple: the signals were there, but no one noticed them. This article will help you look 90 days ahead into your financial model and identify the key triggers.
Triggers in the financial model
The main mistake in crisis management is relying on intuition. Objective reality is hidden in the reporting numbers. Here are three key areas you need to review every 90 days.
Cash conversion cycle
If a company is earning money but feels a cash shortage, the problem lies in the working-capital cycle. Track three metrics that often become the first indicators of liquidity problems.
Shows how many days the company's money is frozen in unpaid customer invoices. If DSO rises, profit is locked up in receivables. A real-world example: if the company used to collect payment in 45 days and now waits 4 months or more - that is a critical risk level.
When goods sit in the warehouse, a rise in this metric signals that cash is being deadened in illiquid inventory.
Lets you assess how long the company can use suppliers' money without harming the relationship.
An alarming signal is when revenue grows but there is no cash in the accounts. This is the classic sign that profit has turned into working capital that has slipped out of control.
Behavioral signals in management reporting
Not all triggers are expressed in dry numbers. Often a crisis is given away by the team's decisions.
- A shift of focus toward revenue growth at the expense of margin - working at break-even just for turnover.
- Introduction of complex manual processes and workarounds that increase operating costs.
- Departure of high-performing employees and growing staff burnout - the organization's energy drains away long before the balance sheet falls.
Free cash flow and debt load
If free cash flow (FCF) is consistently negative for 2-3 reporting periods in a row, it means the company is eating into its reserves and living beyond its means.
Contractual triggers: covenants in contracts
Contracts are not just a formality. They are a map of risks that can either save a business or accelerate its collapse. It is crucial to build early warning mechanisms into contracts for all parties involved.
The trap of vague wording
Practice shows that more than a third of companies suffer in a crisis because of foggy contract wording - for example, material adverse change. Only a small share of contracts have clear specifics, such as a direct reference to a pandemic or currency fluctuations.
What should be written into contracts
- A clear force majeure list. Define not only global catastrophes, but risks specific to your niche: software failures, bankruptcy of a sole supplier.
- Early notice. A clause requiring the counterparty to warn you 30-60 days in advance about an inability to perform its obligations.
- A restructuring procedure. Automatic triggering of debt restructuring negotiations when certain triggers occur - for example, a delay of more than 90 days.
If the crisis has already hit
With clear covenants in place, banks and investors will be obliged to act according to the written procedure, rather than on the principle of - you owe us everything, right now.- The logic of a protective contract
This gives the company operating room to maneuver and restructure its debt.
How the financial model predicts the future 90 days out
Building a dynamic financial model is your core survival tool. A manual Excel table for a year ahead is no longer enough. Today scenario modeling with triggers is required.
How the dynamic model works
Each scenario should be triggered when specific conditions occur: a 10% drop in sales over two weeks, a 20% rise in raw material costs.
An early warning system should account for:
- a 90-day cash flow forecast;
- break-even calculation under different scenarios;
- monitoring of key indicators (DSO, inventory turnover, debt structure) on a daily or weekly basis.
Integration with BI systems
An effective financial model is not a static file, but a regularly updated system. The modern approach involves connecting external data sources (exchange rates, market prices) in real time. As soon as one of the indicators goes out of bounds, the system automatically switches the company to an alternative scenario, preserving capital and employees.
Cases and crisis monitoring in practice
Theory only works when it is confirmed in practice. Let's look at real situations where the use of triggers saved a business or allowed an exit with a profit.
Case 1: how to spot paper profit in time
Situation. The company shows steady profit on its income statement, but when it tries to pay out dividends it finds empty accounts.
Diagnosis. Profit has been eaten by assets - receivables and stale inventory. The money changed form but did not turn into real liquidity.
Solution. Introduce a monthly calculation of DSO and inventory turnover. Threshold indicator - DSO no more than 45 days. A rise to 60 days or above becomes a trigger for a full audit of credit policy and forced collection of debts.
Case 2: scenarios for a fast-changing market
Situation. Classic quarterly planning stopped working amid sharp currency swings and supply disruptions.
Solution. Build a financial model with clear triggers. Instead of a vague one-year plan, they introduced rules: if sales drop 10% over two weeks - a scenario of reduced purchasing and a hiring freeze is automatically activated. This made it possible to avoid emotional decisions and preserve liquidity.
How G-Invest can help
The consulting company G-Invest has extensive experience in crisis management. The company's specialists help to:
- audit your current financial model for blind spots where negative triggers hide;
- implement custom early warning dashboards tailored to the specifics of your business and industry;
- develop contract structures with maximum protection against force majeure and clear covenants.
G-Invest works directly with owners, offering concrete risk management tools and exit strategies for difficult situations.
Diagnostics of your financial model for hidden triggers
We will check your financial model and key contracts for blind spots, set up an early warning dashboard and write protective covenants - so the crisis is visible 90 days ahead, not at the moment of a cash gap.
Frequently asked questions
Which financial metrics are the main crisis triggers 90 days out?
The main triggers are a sharp rise in DSO (days sales outstanding), an increase in inventory holding period (DIO), and a drop in free cash flow (FCF). If these metrics deteriorate for 2-3 months in a row - that is a direct signal of an imminent liquidity crisis.
Is there any point in building a financial model if the company uses a simplified tax regime and has taken no loans?
Yes, there is always a point. The absence of loans does not protect you from cash gaps, growing receivables or erosion of working capital. A simple 90-day forecast model will help you manage payments and see future cash shortages, even if you have no complex borrowings.
Does G-Invest help build financial models for investors?
Yes, in addition to crisis management, our company develops investment projects and financial models for raising capital, prepares M&A deals and carries out full pre-sale preparation of a business.