The industry is getting more competitive these days, and businesses are struggling to survive given the ever-changing economic state. Hence, at times when it’s necessary to save a business from going bankrupt, a good way would be to undergo company restructuring. If you’re wondering what is company restructuring all about, in this article, we explain everything you need to know when it comes to restructuring a company:
What is Business Restructuring?
Business restructuring involves reorganizing the management, operations and finances of a company with the main purpose of increasing overall efficiency and financial standing. It can also involve the company to enhance their relationship with customers or shareholders as well as improve the quality of products or services.
The Process of Business Restructuring
There are several steps involved when it comes to restructuring a company. Here are the important steps:
Step 1: Assess the Need for Company Restructuring
First things first, the company should start by doing a full-on assessment of whether a restructuring is needed for business growth. This step involves identifying if there are any financial or operational performance issues and weaknesses, as well as understanding the benefits of restructuring.
Step 2: Identify Objectives and Goals
After the first step is done, the next step would be to identify the goals and objectives of the company. For instance, what are the main outcomes of the restructuring such as boosting productivity or enhancing financial stability? It would be easier to ensure the restructuring is a success once the goals and objectives are set.
Step 3: Create a Business Restructuring Plan
Next, you should come up with a comprehensive detailed business restructuring plan. The plan should include details such as the actions needed to achieve the goals as well as specific roles, responsibilities, timelines and resources needed. With a proper plan in place, it will be much easier to ensure everything goes accordingly to have a successful business restructuring.
Step 4: Track and Monitor Progress
Once the plan has been executed, it’s important to ensure that proper tracking and monitoring is performed. This includes reviewing whether the overall plan is working and whether the key performance indicators (KPIs) are being met.
Step 5: Adjust the Business Restructuring Plan if Necessary
While the company restructuring is in place, do keep an eye and make changes whenever necessary. This is important so that you can ensure the final goals and objectives of the business restructuring are achieved.
Why Businesses Undergo Financial Debt Restructuring
One of the primary reasons when it comes to restructuring a company is due to financial debt. Businesses tend to undergo financial debt restructuring as it can help them to pay off their debts, and request some leeway by extending the loan repayment periods or adjusting the interest rates.
Here’s a real life example of a financial debt restructuring situation:
Savers Inc., which is one of the largest for-profit thrift store chains in the United States, managed to successfully undergo business restructuring for the financial debts by reducing the debt by 40%.
It was through an agreement with Ares Management Corp. and Crescent Capital Group LP that they took over the company and exchanged the debt for equity. They also managed to refinance a $700 million loan and reduced the interest costs.
Why a Business Restructuring Plan is Needed Before Restructuring
A business restructuring plan is needed to ensure there’s a properly organized way to execute the restructuring successfully. There are several main benefits of a business restructuring plan which are:
- Ensuring Financial Stability: This is to ensure that the finances are addressed, boost profitability and reduce debts.
- Boost the Overall Efficiency and Productivity: This helps to ensure that all parties involved are clear on the objectives and work towards the same goals together.
- Provide Long-term Sustainability: With a restructuring plan, all parties are able to ensure the effects of restructuring are long-term and provide sustainable business growth.
Signs a Business Needs Restructuring
The mistake that most businesses tend to make is to seek help when it’s already too late. It’s better to start seeking help earlier on to prevent further excessive damage to the company once there are clear signs.
Some of the common clear signs that warn of a business restructuring include:
- Cash flow issues
- Excessive debts
- Low profits, or
- Operational productivity issues.
Getting help for corporate restructuring enables a business to get back on its feet while things are still manageable. There are various professionals like BDO who provide business restructuring consultation services and are able to provide professional consulting on corporation restructuring.
Restructuring Challenges for Business
There are several challenges when it comes to restructuring a company. Here are the major challenges:
- Expectations of the Parties Involved
Since restructuring involves multiple parties such as employees, stakeholders, and customers, it may be difficult to manage and confide their expectations.
- Potential Financial Risks
Restructuring a company is a huge and long-term process, hence it involves a high cost. Thus, there might be some financial strain on the company during the restructuring.
- Resistance to Change
Some companies may face trouble implementing the restructuring as employees or stakeholders might not be accepting of the sudden change.
- Effect on the Employees
The restructuring may impact the employees as they may feel stressed, leading to low productivity levels or high retention.
Impacts of Restructuring on Organizations
There will be several impacts of restructuring on any business.
Pros of Business Restructuring
- Financial Stability: Restructuring helps boost financial stability and ensure an increase in profitability.
- Competitive Advantage: The company will enhance its competitiveness among the other key players in the market as it is much more organized and well-prepared.
- Improve Efficiency and Productivity: The employees are able to work more resourcefully with the right processes in place.
Cons of Business Restructuring
- Potential Layoffs: Employees’ jobs may not be secure as there could be potential downsizing within the company to stabilize its operation.
- Risk of Brand Image: The company’s image and reputation may be tarnished as it’s a sign of failure.
- Operation Disruptions: The company’s operations may temporarily be halted or experience disruptions due to the changes.
Conclusion
Overall, business restructuring is a strategy for organizations to get back on track and solve major issues to foster growth. There are numerous benefits to restructuring a company, and although it’s a risk a company has to take, it may help improve the business in the long run to achieve long-term sustainability.
If you are looking for business restructuring advice from a professional, consider engaging with BDO! Their business restructuring consultation services are carried out by experts that will offer tailored solutions to build a better future and plan for the success of your business.
