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. Restructuring means improving the operational, financial, legal, or other structures of your business to maximise its profit and to ensure efficient operation. 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.
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:. The lifeblood of any small and medium business is its cash flow. Once this is disrupted, the business runs the real risk of bankruptcy if nothing is done about it. The good news, however, is that even in turbulent times there are steps that the owners, shareholders, and directors of a business could take to promote cash flow.
In the most basic terms the inflow of money into the business must be increased and its outflow reduced.
The first thing to do before exploring restructuring is to save money wherever possible and follow up on outstanding invoices which are yet to be paid to channel in money into the business; you could then also look at potentially obtaining finance which will plug any short term gaps, or better still work on increasing your sales and revenue.
However, if these actions have been carried out and forecasting shows that the business is still going to be in financial difficulty then restructuring may be the best option to pursue.
Restructuring is usually highly beneficial so there is no need for the company or its directors to avoid the process and there is no hard and fast rule that says a company must continue to operate the way it was founded. Restructuring is a way of changing a business or group with the goal to make it more profitable. While it could be assumed that corporate restructures are only used by struggling businesses, this is far from the case. Corporate restructuring is often used as an essential part of successful business acquisition and growth.
Financial restructuring: This is most often used when businesses have debts and tax considerations that they are struggling with, it is often necessary to restructure financially to reduce the business liabilities and increase profitability. There are different types of restructuring and the type used will depend on the reason for being restructured in the first place.
Debt restructuring is one of the most common motivators that we see for business restructuring. Owing creditors can put the very existence of your company at risk, but there are often steps you can take to reduce your liabilities. You may be able to restructure your debt and continue trading by introducing a Company Voluntary Arrangement CVA , which is a legally binding agreement between you and your creditors.
If you think you will make profit again in the future, a CVA can provide short-term relief from your debts in return for a guarantee that you will honour them in the future. Alternatively, you may be able to clear part or all your debts by agreeing a corporate restructure to provide your creditors with equity in your business.
Debt restructuring could also include restarting the company or using an insolvency process call pre-pack administration. Both of these mean closing the existing business and selling the assets to a new company. Reorganize your company and plan for the future in Lucidchart. Lucidchart is the intelligent diagramming application that empowers teams to clarify complexity, align their insights, and build the future—faster. With this intuitive, cloud-based solution, everyone can work visually and collaborate in real time while building flowcharts, mockups, UML diagrams, and more.
The most popular online Visio alternative , Lucidchart is utilized in over countries by millions of users, from sales managers mapping out target organizations to IT directors visualizing their network infrastructure. What is company restructuring? Company restructuring is a corporate management term that broadly refers to a company doing one of the following: Changing its organizational structure, which can involve shifting direct reports to a different manager, reallocating resources to other parts of the business, etc.
Changing its financial structure, which can involve selling assets, refinancing debt at lower interest rates, or even filing for bankruptcy For the purposes of this article, we'll focus on organizational restructuring. Why do companies reorganize? The primary reasons for restructuring can include: Something is broken. Your company has merged with or acquired another organization. An employee in a key position has left, which leaves an opportunity to question the organizational structure.
You want to make way for a new opportunity, such as launching a new product or capturing a new market. The needs of your customer base have changed. The organization has grown or is downsizing. Managers have too many direct reports. Read now. How to restructure a company or department No matter your reasons for changing your org structure, consider adding these steps to your company reorganization process. Start with your business strategy The first component of company reorganization strategy is finding out why upper management wants to reorganize in the first place.
This new organizational structure should include: The vertical and horizontal lines of authority An indication of who will be making formal decisions within departments Attributes of employees, including skills and experience The definition and distribution of functions throughout the organization and the relationships among those functions Consider the pros and cons of different types of organizational structures : hierarchical, horizontal, matrix, etc.
Launch your company restructure and adjust as necessary The moment has finally arrived to execute the company or department restructuring. In this new structure, the back end of the organization Technology, Personal Systems, Server, and Software Technology Platforms would develop solutions that the front, customer-facing part of the company a new Worldwide Sales and Services group would market. The goal was to break down silos and better meet customer needs, and the reorg was a huge success.
Throughout the s, however, IBM tried to navigate the dynamism of its industry by relying on reconfigurations. It downscaled its lower-margin hardware business through a wave of unit closures and divestitures and ramped up its digital efforts by adding new units such as commerce, security, analytics, Watson, cloud, and health care.
Though the company still aspired to be a cutting-edge technology icon, its strategy of modest changes caused it to fall short of that goal, and its performance languished. Moreover, restructurings take time to bear fruit: Our research indicates that even the most successful ones take three to four years to have a positive impact on profits. We recommend waiting at least five years between them—or longer if your strategy needs only tweaking, not radical transformation.
When organizations try out too many structures too fast or continually bounce back and forth between old archetypes and new ones, confusion reigns and engagement, innovation, and performance falter. When it comes to reconfigurations, the rhythm is more of a balancing act.
In some cases, multiple reconfigurations can snowball into an unintended restructuring that hurts performance. Some companies engaged in such elongated, persistent change cycles that they reconfigured themselves out of existence. Even the most successful restructurings take three to four years to bear fruit. One organization that seems to have found the right balance and pace of restructurings and reconfigurations over the years is Dow Chemical.
Following successful restructurings in , , and , the company embarked on another in to reflect a new strategic direction following its acquisition of specialty chemicals manufacturer Rohm and Haas. It adopted a matrix structure, with five business divisions and geographic regions supported by a common Business Services Group and stronger central functions such as Engineering and Manufacturing.
The company has meanwhile executed a variety of reconfigurations. Since , it has dissolved at least two units per year to focus on specialty and advanced chemicals.
And at least once a year, it has split businesses to form market-focused stand-alone units such as the new Infrastructure Solutions group and combined units for example, merging the Chemicals and Energy divisions into one group. Whether you are restructuring or reconfiguring, the way you group and allocate activities and resources must play to your strengths and differentiate your company from competitors. That might seem obvious, but not all firms have the discipline to follow this guideline—or even understand which practices are most suited to their situation.
Whereas Citi organizes its activities by business lines, HSBC relies on a three-dimensional business-geography-functional shared services matrix. Consider also the professional services firm Accenture.
Instead of grouping countries by region, as many consultancies do, Accenture is organized around more-strategic geographic distinctions. Both were already market leaders in their segments of bandages, sterilizing equipment, syringes, needles, and blood collection equipment.
But when combined, the group became even more innovative and profitable , developing the first fluid-injection systems for surgical sterilization. Another reconfiguration best practice is to put organically developed units together with acquired ones—ensuring that the combined unit has both institutional DNA and new blood. Companies undertaking either type of reorganization must remember that when activities are reassigned, the resources needed to support them must follow.
When a company restructures, many other aspects of the organization must change too.
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