Why Early Crisis Communication Is Key to the Success of Restructuring

When a company finds itself in financial distress, every day counts. Yet in crisis situations, action is often taken too late, and silence is maintained for too long. In practice, attempts at turnaround and restructuring in small and medium-sized enterprises rarely fail due to a lack of strategies—the real sticking point usually lies in the fact that warning signs are overlooked, problems are swept under the rug internally, and key stakeholders are not brought on board in a timely manner. Dr. Markus Mairgünther, attorney and partner at SGP Restrukturierung (Augsburg and Munich), explains how entrepreneurs, managing directors, and turnaround consultants can build trust and initiate a turnaround through early, transparent crisis communication.

The Risk of Silence: A Loss of Trust Accelerates the Crisis

As soon as economic difficulties become apparent, uncertainty grows throughout the business community. Company leaders who withhold information or postpone unpopular decisions during this phase risk an irreparable loss of trust:

• Employees fear for their jobs, which can lead to a decline in performance and the loss of top performers.
• Suppliers demand payment in advance, shorten payment terms, or halt deliveries.
• Lenders and banks tighten credit checks, reduce existing credit lines, or require additional collateral.

While open and transparent communication cannot undo existing problems, it does lay the essential foundation for working with all stakeholders to develop viable solutions.

Targeted, crisis-specific communication: Focusing on key stakeholders

During a restructuring phase, each creditor group pursues its own interests and has specific information needs. A successful communication strategy must therefore take a differentiated approach:

1. Engage Employees: Provide Guidance and Alleviate Fears

In times of crisis, the workforce needs, above all, direction and reliability. A transparent presentation of the economic situation, combined with a realistic outlook for the future and a plan for recovery, helps alleviate uncertainty. In many cases, initial uncertainty gives way to a noticeable willingness to embrace change and a sense of motivation that actively supports the turnaround process.

2. Involve Suppliers: Stabilize Supply Chains

Long-standing business relationships are a strategic asset. Early, open discussions about the restructuring plan and binding payment agreements help prevent supply disruptions and legal disputes. This requires precise cash flow management: Promised payments must be strictly honored to avoid undermining the trust that has been placed in the company.

3. Convincing Financiers: Solid Numbers Instead of Empty Phrases

Banks, shareholders, and alternative investors demand a transparent, verifiable data set as well as a coherent restructuring plan. Only a realistic action plan can create the conditions necessary for existing financing to continue, loans to be restructured, or additional liquidity to be made available.

Court-Supervised Restructuring Proceedings as a Strategic Tool

If restructuring is initiated in a timely manner, structured, court-supervised restructuring proceedings (such as self-administration or protective shield proceedings) also offer significant opportunities. They enable companies to:

• Break down entrenched operational and contractual structures,
• Establish legal certainty for all parties involved,
• Utilize collateral and funds necessary for operations to ensure an orderly continuation of business,
• Position the company for sustainable competitiveness.

Common Pitfalls for Management

Turnaround efforts usually run into trouble due to recurring poor decisions:

• Delayed decision-making: Waiting too long drastically limits the scope for action.
• Pure “hope”: Strategies based on overly optimistic assumptions that are intended only to provide short-term reassurance quickly lose credibility.
• Pure cost-cutting without a strategy: Cost reductions without a clear vision for the future do not build lasting trust among customers, employees, and partners.
• Underestimating early warning signs: Formerly successful companies, in particular, tend to ignore the symptoms of a crisis.

Legal Obligations and Liability Risks

Managing directors are subject to strict statutory monitoring and due diligence obligations. These include the ongoing assessment of whether the company is at risk of insolvency (inability to pay and excessive debt). If a required petition for insolvency is not filed in a timely manner, management faces significant civil and criminal liability risks.

Conclusion: Timing and Expertise Are Key

A successful turnaround is not based solely on financial metrics, but depends largely on transparent, professional communication with all stakeholders, as well as timely access to sound restructuring expertise. Those who take early warning signs seriously, proactively seek dialogue, and act decisively maximize the chances of a successful turnaround and ensure the company’s long-term survival.

This article is based on a professional article by Dr. Markus Mairgünther, published in B4B Schwaben.