The process of reorganising one or more aspects of a business to increase its efficiency and profitability is known as corporate or business restructuring. Corporate restructuring is an umbrella term that encompasses four distinct groups of activities:
- Financial restructuring
- Organisational restructuring
However, most corporate restructures involve multiple activities, and the process is non-linear with several tasks being worked on simultaneously.
The aim of a restructure is to improve the current situation and respond to the ambitions of the business owners. For some, this could mean operational changes to bring efficiencies to the business. For others, it may mean pulling the company out of imminent insolvency and liquidation. Other cases may include preparing for a merger or acquisition.
In all cases, each process is unique and there are many objectives and aims to solve problems of restructuring. When done properly, a restructure makes your business more dynamic and innovative. It becomes more efficient, robust and profitable.
The only ideal business owners need to remember? Never let pride keep something broken that your heart wants to fix.
Taking the right strategic steps
The first and most essential step is acknowledging and taking ownership of the problem and having the desire and energy to make changes. The sooner you do this, the better. Delaying restructuring only reduces the options available and increases the risk of business failure.
The next step is a diagnostic review to identify the problems. This is best done by a person from outside the business that is independent, objective and experienced. This review will usually uncover several issues – cash flow, staffing, financial management, operations, processes or debt.
After the review, a plan needs to be developed, and experienced advisors should be engaged to direct the restructure. Overhauling a company always has its challenges. There is no perfect playbook – every change is different, just like each business is unique.
As there will be several tasks happening simultaneously – spinning plates, so to speak – it can look as though it’s very chaotic and lacking direction. This is often a challenging period in a restructure for the business owners. My advice is to look at each spinning plate individually and the impact independently rather than the whole restructure. Look for ways to achieve some quick results – this will keep motivation up while continuing to work on medium- and longer-term plans.
"The man who moves a mountain begins by carrying away small stones." — Confucius.
Draw on the restructuring adviser’s experience in crisis management and let them be responsible for the bigger picture.
The last step is the future strategic step. This is done after the more immediate issues are mostly resolved and the business has a stable platform in which to make medium- and longer-term decisions.
Restructures typically take between six months and three years depending on the size of the business, the complexity of issues and the ongoing support and motivation of the management team.
Ideally, it should be evident if the restructuring is working. For instance, the cash flow is improving, efficiencies have been achieved, debtor days are under control or complaining supplier phone calls have decreased. However, this can get lost in the chaos of the restructure. So I first advise clients to have a plan that they can refer back to. Second, and perhaps most important of all, take a breath and ask yourself, "Where have we come from?"
Rather than looking for the light at the end of the tunnel, reflect on and appreciate the progress to date and use that as the strength to carry on. Don’t be impatient. A lot of the issues that need to be fixed have occurred over a lengthy period and may take a long time to resolve.
Stephen Barnes is a business turnaround and recovery specialist, board advisor and the principal of management consultancy Byronvale Advisors.