Can restructuring a business bring it back from the brink of insolvency? We explore this question in this article…

In the last couple of years, times have been tough for a number of UK business sectors. Sadly, some have been unable to survive.

As the hangover from the pandemic endures, many companies continue to face difficulties, and some of those may face bankruptcy. Thankfully, for a business which is considering picking up the phone to an insolvency law firm, an alternative may be available in the form of restructuring.

In this article, we explore what this means, and whether restructuring is a good option for your company. Read on for more…

What is business restructuring?

This widely used corporate term is used to describe the act of reorganising the structures of a business in a bid to make it more profitable or save it from insolvency. These business structures might include ownership, management, legal and operational employees.

The purpose of restructuring is to streamline the business and cut out unnecessary costs. There are a few different forms of restructuring include Debt Restructuring, Mergers & Acquisitions, and Divestments. The most common type of restructuring is Cost Reduction:

Cost reduction restructuring

A Cost Reduction restructuring strategy aims to boost a company’s revenue by trimming off unnecessary costs. This will often involve:

• The closing of a whole department which is not making a profit or serving the company with a definitive purpose.
• Making members of staff redundant in order to save on salaries.
• The removal of senior management employees and promoting of more junior staff.
• The changing of hierarchies and job titles in order to reduce the amount spent on employee salaries.

This kind of restructuring can help to reduce financial outgoings whilst also simplifying the business.

When should a business consider restructuring?

While every business is different, most should consider restructuring in the following instances:

• The business is not making enough money
• The business has lost money through an isolated event such as a crisis
• The business is not meeting its KPIs
• A major shareholder or Director has left the company
• The business is no longer working efficiently
• There are tasks which are not currently being adequately handled

A company restructuring can be likened to a Government cabinet reshuffle whereby members of staff are shuffled around to give the company a fresh perspective. Although this may involve the unpleasant task of letting some members of staff go, it is a really effective way of breathing new life into the business. 

Why should businesses consider restructuring?

There are a number of reasons a business should consider this, rather than becoming insolvent. These include:

Downsizing

In some cases, the key to a company’s survival is to take a step back and regroup rather than focusing on growth.  By downsizing, a company is able to return to the original standards and ethos from which it was created in the first place.

Decreasing operational costs

It may be that the company is either not making enough money or is spending too much money. Restructuring can help to reverse the flow of a company’s finances by, for example, outsourcing certain tasks rather than hiring a full-time department or member of staff.

A fresh start

Often, problems arise in a company when the passion has faded, leading to a lack of motivation which has a knock-on effect on customers. Shaking up staffing through restructuring can help to get the company back on track and introduce new ideas and perspectives.

Proceed with caution

It’s absolutely true that restructuring can give a business a new lease of life as well as saving it from insolvency by keeping more cash within the business. However, there are a few things to keep in mind before committing to this course of action:

• Morale: a company restructure will often bring with it a sense of uncertainty among employees, which can subsequently lead to low morale. Needless to say, low morale is not good for the business or the customer, so you’ll need to have a contingency plan in place to tackle this.
• Downtime: putting a restructuring plan into place takes time and effort, and it may be that, during the process, there will be a short period whereby your business is not running at full tilt. It’s a good idea to think carefully about whether or not your business can afford this kind of downtime.
• Training: during a restructure, employees may need a period of training which you will need to budget for.
• Reputation: a large change, such as a restructure, within a company might be seen by the public and the media as a sign that the company is in trouble. This can create a problem if customers then decide to go elsewhere.

Restructuring or insolvency?

The decision to restructure a company is one which should never be taken lightly. As detailed above, this can, in some cases, lead to a whole new set of problems rather than solving the existing ones.

Having said that, restructuring can offer a company an amazing opportunity to trim off dead weight, reverse the engines of its financial flow, and re-motivate employees by giving them new challenges. The key to successful restructuring is all in the planning and, if in doubt, it never hurts to seek the help of a professional restructuring agency.

Finally, to avoid disquiet in the ranks, always make sure that you clearly communicate the restructuring plans to your employees, shareholders, stakeholders, and customers.

Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained legal professional. Be sure to consult a legal professional if you’re seeking advice about making your business insolvent, or restructuring it. We are not liable for risks or issues associated with using or acting upon the information on this site.

Image: By Mohamed Hassan from Pixabay.