There comes a point in every business when a transformation becomes necessary, either to improve efficiency, to keep up with rapid growth, or to cater to a wider customer base. This transformation is known as business restructuring and can be achieved by changes to the organizational structure, operational setup, business model, or financial framework. Business restructuring, though time-consuming and quite expensive, is necessary to stay competitive and maintain long-term stability and relevance in a constantly changing industrial and global landscape. It acts as a great opportunity to identify and rectify inefficiencies within the business, explore new ideas, and give the business a fresh start.
But how does a business owner identify that restructuring is required?
Does Your Business Need Restructuring?
Various reasons could signal the need for deeper inspection and restructuring of a business.
Organizational Restructuring: Often, when departments become inefficient or the way the business is done changes, there is a need for a complete reshuffling of the business’s internal hierarchy. This involves doing away with redundant positions or creating new ones, merging or de-merging departments based on their contribution to the business and incorporating new systems for clear and honest communication within the company.
Operational Efficiency: Enhancing routine operational processes through automation of routine tasks, outsourcing non-core activities, and revising operational procedures to boost operational efficiency and reduce errors.
Debt: When the company has significant debt, financial restructuring can improve overall financial health by consolidating debt, replacing higher interest debt with lower interest rates, or converting debt into equity.
Divestment, Mergers and Acquisitions: The change in business structure requires restructuring, such as closing non-performing or redundant divisions and combining duplicate divisions and business overlaps in M&As to reduce operational costs.
Spin-Off: Separating a division of the company into a standalone or individual entity to enable expansion and add value, while the original company acts as a parent company.
Business Repositioning: Complete change or modification of the current business model with the intention of boosting growth, diversifying services, or expanding the reach of the business.
Turnaround: Doing a complete makeover of the company, including replacing employees with different skills, operational processes, purchase and sale of assets, and even a change of products or services offered, triggered by changing customer preferences or market trends.
Restructuring, when done correctly, can prove to be just the catalyst your business needs to go to the next level. But if done without proper analysis and care, it could not only prove to be financially hazardous but could also hurt employee morale and brand reputation.
How Can Entrepreneurs Manage Business Restructuring?
Business restructuring requires a lot of research and planning before implementation. It is important to first check if your business is financially secure to take on such a humongous exercise. Hence, it is crucial to seek the help of a professional accountant and business consultant to understand your current financial position and gauge if the business can withstand and then sustain restructuring. Having ascertained these preliminaries, you can then begin the process of restructuring in the following manner:
Identifying Areas of Restructuring
Restructuring is usually taken up when the business is on the verge of financial ruin. Of course, this does not happen overnight. The signs begin showing up in your financial statements, revenue reports, sales graphs, and cash flow well in advance. However, without a professional accountant to read between the lines, it becomes difficult to identify the root cause of these problems.
That’s why, when it comes to restructuring, having an accountant by your side right from the beginning is important. By going through your financial metrics, cash flow projections, and other financial documents with a fine-tooth comb, an accountant can identify the areas that are lacking in efficiency and need attention. They can also give meaningful insights into how you can better streamline your business finances, reduce costs, and optimize savings, investments, and other resources.
Developing a Restructuring Plan
With the problem areas now identified, it is time to develop a detailed restructuring plan. This is where a business consultant proves invaluable. They can help optimize your financial resources by restructuring debt and boost liquidity by selling any non-core assets. Their knowledge and experience enable them to come up with different strategies and approaches that could give your business an edge over your rivals.
From thinking of ways to cut down on overhead costs to leveraging the potential of local suppliers and even renegotiating your existing contracts, a business consultant is your biggest ally during this phase of change. Most importantly, they will ensure all plans and strategies align with your business goals, values, and budgetary limits.
The accountant and business consultant can work hand in hand to create “what if” scenarios that can be used to predict the potential outcome of any decision made during restructuring, thus controlling the risks involved and giving you a better sense of direction.
Implementing the Restructuring Plan
While the planning stage involved internal discussions and co-operation, the implementation stage requires you to connect with your suppliers and creditors as well. Renegotiating terms with them, explaining any changes to your operations or supply chain processes, and gaining their cooperation for the same is crucial for your restructuring plan to be a success. The business consultant can play a big role here as well, as they can present your case to all these people in a much more compelling way using historical data, graphs, and forecasts.
Communicating With Team and Defining Roles
It is important to involve your employees in the restructuring process as well. Explain to them why and how the restructuring will take place and outline the role they will be playing in it. If any departments or positions are being added or removed, communicate the same to the concerned employees. Train them for any new tasks or processes that you plan to implement. Most importantly, reassure them of your trust in them and their value in the company.
Monitoring Restructuring
Successful planning and implementation are not the end of the restructuring journey. Regularly monitoring the success of the plan is important. As the business owner, it is your duty to track your performance metrics and check if your new business structure is meeting its intended goals. Suppose the end goal of restructuring was to improve cash flows by cutting costs and reducing inventory wastage, but the cash flow increased because of the sale of an asset. A simple cash flow statement may not be enough. A business consultant will list down and monitor key performance indicators specific to restructuring efforts.
How Outsourcing Can Help
Restructuring is expensive, but restructuring without the help and guidance of a business consultant could prove to be even costlier in the long term. While outsourcing your restructuring and accounting needs may seem like an added expense, the truth is that their knowledge and experience about not just the subject but the market, the industry, and the financial and legal requirements make them a value addition to your company. So, for a practical, data-based, and sustainable restructuring plan, consulting a specialist is always the best choice.
Contact Black and Gill LLP in West Toronto to Help You with Business Restructuring
Talk to a professional business consultant to understand if your business needs restructuring and in which areas. At Black and Gill LLP, our accountants and business consultants can provide services such as financial statement analysis and performance tracking. To learn more about how Black and Gill LLP can provide you with the best accounting and business consulting services, contact us online or call us at 416-477-7681.