Business owners and company directors should always be looking forward and taking pro-active measures to help their businesses.
If you have carried out cash flow forecasts and the coming months or years are looking difficult then now may be the ideal time to be looking at restructuring your business.
Why would a business restructure?
Restructuring means improving the operational, financial, legal, or other structures of your business to maximise its profit and to ensure efficient operation. For the business restructuring to be effective, it will need the joint efforts of business experts, the company management’s team, and key shareholders.
Restructuring is usually carried out when the company is faced with financial challenges, or during a formal insolvency process such as administration. For example, when entering an Administration, the business is granted a moratorium which gives it space, time, and legal protection during the process of being restructured. The business can continue its operation while carrying out a restructuring process (this is only possible when it is not faced with imminent insolvency or litigation).
However, it is not only a company faced with imminent insolvency that can carry out restructuring. A company might also decide to restructure when there is a need for change. This can be due to financial reasons or macro and micro-economic factors that can change the way a company operates. Examples can include political issues like Brexit or global pandemics like the COVID-19 crisis.
The first step to figuring out which form of restructuring is right for your business is to determine the reason you need it in the first place. Typically, it is down to one of these four reasons:
- Financial distress: Your company is losing money because of costs that are too high and debts are growing to unmanageable levels. All this results in an inability or difficulty to pay creditors.
- Expansion: You are buying another company, incorporating a new business strategy, or developing a different way of working. As such, you need to review your business structure to ensure that efficiency and effectiveness does not slip.
- Management: Expansion and growth have resulted in complex management that could benefit from being simplified, or perhaps entire portions or your business have become redundant.
- Legal compliance: New laws have forced you to review your process or introduce new ones that need to be adopted quickly into your existing structure.