What is Business Restructuring?

 

 

What Is Business Restructuring services?

Businesses may see a decline in profits and productivity when there’s a new competitor or weaker demand. When that happens, it’s time to take a step back and reassess the situation to determine if a restructure is necessary to keep the business from failing. 

What is business restructuring?

A business restructuring is about changing the strategy to get a business back on track to achieve sustainable growth and success. It’s usually done by assessing the situation to identify any flaws in the current business plan, then developing a new business plan with short-term and long-term solutions.

 The restructure is to:

•     Improve finance
•     Shift focus on products or accounts
•     Incorporate new technology
•     Improve competitive advantage
•     Merging with another company
•     Decrease debt

To improve the business, you’ll need to look at “the blueprint” of your business plan and redefine your strategy. A new structure will help recapture the core mission and vision by adapting to appeal to the current market.

Restructuring A Business

When a business restructuring service happens, the business goes through a renovation where improvements are made. During this phase, the business plan will be analyzed, and a new strategy will be developed to improve the business.

A new structure also means you’ll be rearranging any current investments to reflect your company’s new strategy. Most likely, you’ll merge different aspects of your business and re-prioritize your finances.

There’s always a percentage of risk associated with any kind of change, but when done right, a restructure can bring a business back from the brink of despair. The new changes can help you regain control of the company and its finances.

Let’s go over what happens during a business restructure.

Improve Finance

Usually, the number one reason why a business may become concerned has to do with dwindling finances. Losing profits or having high operation costs can quickly kill a business.

So, when there’s a decline, no matter how small it is, there’s a pressure to improve finances quickly. If the funds continue to spiral down, then a business will most likely look at a restructure to avoid closing its doors. 

Common Issue: Developing high operating costs is a recurring issue for many businesses. It can happen from the rising costs of people and raw materials from other businesses. You’ll need to develop a better plan to drive down your operating costs:

•     Outsourcing
•     Negotiate terms with current suppliers
•     Find different suppliers with the same (or better) materials at a lower cost
•     Find ways to reduce waste or go green

Shifting Focus

The market in the world is always changing. If a business wants to keep up with society to remain successful, then it must adapt to the current market. A good example would be the food industry adapting to an increasing request for organic foods.

The new demand pushed many restaurants and stores to reorganize their business plan to incorporate new organic food materials and find a way to mitigate the costs. A change like that means these businesses had to contact farmer markets and develop new relationships.

Common Issue: Lack of strategy can cause too many unrelated business lines. When that happens, the business core and strategic imperatives become unclear, and leaders or staff may start to lose the vision.

•     Try to reaffirm your goals for the business and work towards a plan that will define a clear focus and sense of direction to achieve your goal(s).

New Technology

By integrating a better tool system, the business will be able to build accountability measures while decreasing the margin of error. Some technology upgrades will increase:

•     The spectrum of services
•     Growing interest
•     Value to your business

When credit cards became widespread, many businesses had to incorporate new card readers to the cashier systems. Then the credit card companies decided to create new cards with a chip, so again, businesses had to set up new card readers where the cards can be inserted.

Not having a card reader will cause you to request cash only from your guests, and this may be harmful to your business. Incorporating a technology upgrade would fix that issue.

 Another great thing about technology is, there’s also an opportunity to invest in research and development. A strong research and development restructure could drive the company growth upwards.

 For example, a restaurant investing in developing a digital menu that would make their services efficient and convenient would increase the business’s value and increase productivity. It could also count as a competitive advantage.

 Common Issue: Lack of technology, or any upgrades, may cause a loss in profit. It can also result in lower quality information and reporting. Without the best payroll system in place, the financial reporting or human resource management won’t be streamlined, which means you won’t be able to make informed decisions.

•     Explore different technology options and check out these pay stub maker features that may benefit your business or consult an IT service to help you implement an upgraded system.

Competitive Advantage

Businesses are always competing against other businesses. It’s just the way it is. Some mom and pop shops are pressured to compete against corporate companies. Meanwhile, other businesses are competing against other similar businesses that provide the same kind of services. 

 Improving a competitive advantage or brand relevance can help set your business apart from others and maintain a steady flow of potential customers. It can be challenging to keep up with the current market to ensure your business keeps its competitive advantages.

 Maintaining a brand relevance means focusing on your customers and how they experience your brand. You may need to develop a feedback system to know what your customers want.

 You’ll also need to be creative and innovate to keep your products and services relevant to today’s consumers. If you use advertisements and marketing correctly, you can promote your business by emphasizing what makes it relevant.

 Common Issue: Not adapting to the current market can cause you to lose business to others that are considered modern. You’ll have to be open to developing new competitive advantages to stay on the top by making sure your product or service is still relevant.

 Merging

Merging two different businesses that are joined can help reduce internal operating costs and eliminate overlaps in office staff, branch offices, and computing infrastructures. Merging may also mean eliminating the need for some positions. For example, instead of having two managers, you would have one manager.

 Common Issue: After many investments, you may be left to deal with a fragmented and complex corporate structure, a melting pot of some sort, with different parts of the business:

•     Manufacturing,
•     Trading,
•     Real estate
•     Fund management,
•     And more

It would work better if it were all merged and managed by one entity with a leadership team.

Decrease Debt

Too much debt can spell trouble for anyone, but it can be even more daunting for businesses. If the company fails, the debt doesn’t go away. It follows you around until you either pay it off or file bankruptcy. 

 Most successful businesses have their money invested in different stocks, partnerships, among other things. Over time, these things can start to cost money; too much money.

 During restructuring, you’ll have to decide if these investments are necessary. You may have to shift your priorities around and make new investments.

 By merging with other businesses or changing your investments, you may find yourself letting go of some business relationships and making new ones.

 Common Issue: Too much money is tied up in under-performing, or unnecessary investments, which can be hard to spin off without a clear exit strategy.

•     Re-prioritize investments
•     Consult with a financial expert or project manager
•     Close/cancel investments that are no longer profiting your business

The Business Restructuring Process

Now that you know what business restructuring is let’s go over how it’s done. The process can be lengthy and frustrating if you don’t know what you’re doing. That’s why some businesses prefer to hire restructuring services (more on that later). The steps usually look like this:

1. Assess the situation
2. Identify any flaws or weak spots in the business plan
3. Develop detailed short-term and long-term solutions
4. Implement the short-term/long-term plan
5. Calculate and secure funding
6. Evaluate results

Assess the Situation

Assessing the situation will help you take a deeper look at your business and decide which areas may need to be restructured. This can be a big step because this is where many business owners accept that it’s time for a change. There may be some questions that may pop up, such as:

•     Does the business need custom programming and integration?
•     What is causing a high operation cost?
•     Should we hire project managers?
•     Do we need new relationships and sales strategies?

Look for Weaknesses

As you’re looking at the overall picture and analyzing which areas need to be improved, it would be an excellent opportunity to look at any flaws or weak spots in your business. Sometimes the weak areas will pop up right away when you assess the situation, and other times they may be well hidden. Here are some questions you should ask yourself at this stage:

•     Are the materials good quality?
•     Is the efficient production that effective?
•     Check the workforce morale (even if you think your employees are happy– double check to make sure)- is it good?
•     Is your brand recognized? Is it the right brand image?
•     Is your promotional strategy working?

If you answered “no” to any of these questions, then you’ll need to come up with a solution to correct the issue in your development plan. The goal is to confront your weaknesses and turn them into strengths.

Develop A Plan

Developing a plan is easier said than done, there are usually many factors that need to be taken into consideration. If you’re doing this on your own with little or no experience, it can be even trickier.

Ultimately, a plan will be developed after coming up with solutions that will address the questions that were raised during the assessment process. Some business owners want to focus on the short-solution process to stop losing money, but long-solutions are just as important.

As you’re working on the plan, consider the design:

•     Does it address the flaws or weak spots you found?
•     Is it appropriate for the problem the company is facing?
•     How will investors react to the new plan?

 It may take you several tries with a rough draft until you’re completely satisfied with the new structure plan– this is normal. Even if you hired someone to develop a plan for you, chances are they had to go back to the drawing board more than once.

Implement the New Structure

After assessing and developing a plan, it’ll be time to implement it. This is where you’ll have meetings with your staff and bring them up to speed on the new plan you’ve developed. It’s also an excellent time to get everyone excited and motivated about the future.

 You may need to provide training, depending on what the new changes are, so there is not a long dip in productivity while everyone gets used to the new structure. The small cost for training may be worth it in the long run, especially if you are installing new equipment or systems that your staff is not familiar with.

 Implementing a new structure can be complicated, depending on the size and makeup of your business. If you oversee a rather large corporation that has multiple aspects, then it may be a lengthy process, but if it’s a small business with fewer staff and departments, it could be more straightforward.

Secure Funding

When investors hear that a company is going through restructuring, common sense usually tells them that it’s because the company wasn’t doing well, which means the future may not be so bright. For that reason, some investors may end up pulling out.

To secure funding, you’ll need to approach your investors with a strong plan and the confidence to pull it off. Consider hiring professional project managers, having their support may help make the project seem viable.

 If you’re doing this on your own, and your business is still new with a few investors, then there is a good chance some of them may back out. If your business was successful for a long time, and only needs an upgrade to catch up to the current market, then you’ll be more likely to secure funding.

 Another option to consider is selling a majority of the business’s stocks to a group of investors. This will pretty much guarantee a significant ownership change, but you’ll have funding and still be a part of the business.

Evaluate Results

Numbers don’t lie. At the end of the day (or month), the numbers will tell you if the restructure is working. The change may only produce a small improvement at first, but you should see a gradual change as time goes on.

By evaluating the results, you’ll find out if:

•     There is increased profit
•     Lower operation costs
•     Sales marketing shows improvement

If there’s no improvement, and it’s been months, then you may have to consider making drastic cuts or hiring a service to help develop a better plan. If all else fails, you might want to sell your business or risk losing more money. 

Types of Business Restructuring Services

There are different types of business restructuring, and sometimes they’ll overlap. Here are some common examples:

•     Mergers & Acquisitions
•     Research & Development
•     Legal
•     Financial
•      Business Turnaround
•     Repositioning
•     Cost Restructuring
•     Divestment
•     Spin-off

Mergers & Acquisitions

Mergers and acquisitions is the integration of two or more firms and their departments, along with operations and products. When a business makes an acquisition, it’s similar to merging, where another business line or department is added.

Research & Development

Investing in research can lead to innovation, which can result in increased productivity and profit. A strong research and development restructure has been known to boost a business’s competitive advantage.

Legal

When this happens, it’s more about changing the legal structure of the business. For instance, the ownership structure. During this type of restructuring, a business unit may choose to become its legal entity.

Financial

This is where a change happens to the business’s capital structure, such as a debt restructuring that will allow a firm with economic issues to continue operating.

Turnaround

The staff “make-over” restructure, where the performance and operations of the administration is improved with a change in leadership and employee strategy. At times there may be a new set of rules to follow under the turnaround management team.

Repositioning

Repositioning restructure is where a business is given a new model (and a new sense of purpose) by changing the product or service it provides.

Cost Restructuring

Like the title says, it’s about cutting costs (administrative or operational) and implementing changes in response to a downturn in revenue. Downsizing may come into play.

Divestment

Divestment is often a last resort business restructuring service that most business owners try to avoid, selling or closing a business that has been deemed unprofitable or problematic.

Spin-off

This is where a business may be structured to be its own company while you still have some kind of ownership. It usually happens when there’s an attractive part of a business that has high value.

Benefits of Restructuring

Services to restructure your business will enable a clear focus and a new sense of direction. If everything goes according to the new plan, you’ll see a reduction in operating costs and an increase in profits.

 By establishing a new vision, it’ll be easier to motivate your teammates and get them on board under a stronger leadership. 

Additions of new accounts, or further expansion, will help you gain a position for growth. Not only that, by breathing a new life into the business, you’ll be increasing the company’s value and preparing it for a possible sale in the future.

However, many people will agree that the number one benefit of business restructuring is not having to close the doors or sell the business. That’s always a big plus.

To recap, the benefits are:

•     Focus and a new sense of direction
•     Reduced operating costs
•     Renewed motivation and morale
•     Increase in profit and value (usually after the restructure is done)
•     Not having to close or sell the business

Disadvantages of Restructuring

Talking about the consequences is no fun, but they need to be taken into consideration. After all, business restructuring services can affect many people within the business.

Low Morale & Productivity

One of the most common side effects of restructuring a business is downsizing. That means laying off its employees.

It can backfire and cause a massive dip in productivity and low worker morale. This usually happens when a business waits too long to develop a new restructuring plan and needs to make drastic cuts to stay operational.

One of the main goals of a business restructure is to improve morale and rally the staff, and it’s hard to do that if you’ve let go of many highly skilled workers.

If your restructure focuses on implementing new technology, not laying off workers, you may still see a small dip in productivity while the employees learn their new roles and responsibilities while adapting to the technology.

Lack of Funding

As mentioned earlier, when a restructure happens, investors may start getting worried about the business’s future and want to abandon the ship. You may lose some funding if you’re not able to reassure them with a healthy business plan.

 While we’re on the subject of funding, it’d be good to mention that if you’re able to cancel your debt as a part of your restructure plan, it may turn into taxable income for the business. You’ll need to plan ahead and find a way to cover that cost.

 To recap, the disadvantages are:

•     Downsizing could mean layoffs
•     Reduced productivity
•     Loss in profit (usually during the restructure)
•     Lack of inventors
•     No guarantee that the restructure will be successful

Business Restructuring Services

Implementing business restructuring can be a lengthy process, and it involves looking at a lot of data. Some businesses don’t have the time for that. That’s where restructuring services come in.

They have experienced staff members that act as project managers. They can crunch numbers and determine which path would be best for a business restructure. Most of these services offer to analyze different aspects of the business: 

•     Stockholders and financial relationships
•     Vendors and consumers
•     Employees and inventory
•     Quality control
•     Environmental impact
•     Equipment and technology
•     Management and marketing

Instead of worrying about these details yourself, you’ll be getting reports and presentations from the restructuring services with recommendations.

I like to think of them as wedding planners, the people behind the curtain that plans everything out meticulously while taking into account all of the bride’s demands. They bring the plan to fruition. 

Depending on which service you hire, some of them offer to help make sure you have the right human resources in place and employees that are supported by HR policies and training.

Tip: When you reorganize your HR resource, you can implement a new IT system to offer a better support function for your business. Adding technology of some kind will improve the quality of your business while making it more streamlined.

Consistent Communication

Keep in mind that these services are there to help walk you through the process and make recommendations. Espresso Translations and a good line of open communication will help ensure everyone is on the same page.

These services can also help manage the change from the initial design to the end product, to ensure that the implementation goes smoothly with minimal issues.

•     Before restructuring- A consultation should take place where goals are discussed and, an agreement is made.
•     During restructuring- Sharing information and communicating with staff members is essential. As the changes are underway, it’s crucial to make announcements and keep everyone on the same page. 
•     After restructuring– After it’s all said and done, there may still be some lingering issues, which should be communicated so they can be resolved.

Keeping a line of communication open for employee feedback and involvement can help the restructuring process. It can create opportunities to get an update on how the efforts are progressing and provide an insight from a different perspective.

Are the Services Worth It?

It depends on how much time and expertise you have. If your business is in danger of going under, then you’ll probably want some professional services to help get everything under control quickly.

 If your business has been somewhat successful in the past and simply needs a rehaul to make it more “modern.” Then you could probably restructure the business on your own, but it would still be ideal to consult with someone for a second (preferably professional) opinion.

How Much Does It Cost to Restructure A Business?

Restructuring expenses are considered a nonrecurring operating expense. The charges will be included when doing the company’s finances and taxes, but it won’t have any effect on the stake of the shareholders since it is a “one-time charge.”

 The following may qualify as a short-term expense:

•     Employee layoffs
•     Closing down manufacturing plants
•     Moving company assets to new locations
•     Writing off/selling assets
•     Purchases of new technology or equipment
•     Investing the business into a new market.

In the end, the restructuring costs will be included in the financial statements of the company to calculate net income.