Understanding Financial Restructuring

If the last 18 months have taught us anything is the business world, the main lesson to come away with would be to expect the unexpected. Across the full spectrum of commerce and industry, the pandemic has simultaneously created remarkable opportunities for many businesses while placing immense financial pressures on others.

Where your business finds itself along this rather expansive totem pole of rags or riches boils down to a number of factors – your agility as a business operation, your chosen specialism/industry and your financial situation heading into the pandemic to name but a few – but there has been an element of chance to who has and hasn’t come out of the lockdown period in good shape. As such, many businesses have found themselves in dire financial straits through no real fault of their own.

With all of the above in mind, many businesses facing financial pressures having chosen to go down the well-trodden route of financial restructuring in order to reshuffle their finances and get things back on track. In this article, we’ll discuss what financial restructuring is, and how you as a business owner can both utilise and optimise it for your operation.

What is financial restructuring?

According to Investopedia, restructuring is defined as an action taken by a company to significantly modify the core financial and operational aspects of the company. It’s a type of corporate action that looks to modify the debt operations and structure of a company, with the end goal being to limit financial harm and improve the business.

Financial restructuring processes are often taken on by businesses in light of significant financial pressures, but restructuring is also a well-used strategy amid sale preparations, mergers, buyouts, business change programs and transfer of ownership processes. Regardless of the reason for implementing a restructure, the aim is always to create a more efficient, economically sound business operation.

Optimising the financial restructuring process

If you are facing a restructure as a business owner, you must be wary of what is a highly complex process ahead. To install your plans effectively, there are five key points for consideration when restructuring a business:

• Assess the situation: especially where restructures in light of financial crisis are concerned, the temptation is often to completely overhaul every financial and operational element of the business, but this isn’t always the best course of action. Before you undertake such a significant upheaval, take a moment to consider what areas of your business truly need to be looked at. This is where professional corporate advice becomes a vital aid, as it’ll help you to truly understand the scenario in front of you.
• Redefine your goals: just as the industry landscape around you changes, so should your business goals. In a restructure, one of the most important elements will be to reassess what your idea of success is, and how that success can be delivered to you today. New tools, resources and measures must be utilised to help you emerge from the crisis you’re in, so expect to consider significant changes like downsizing, department reorganisation and changes in management structure as part of your journey.
• Make operational improvements: operational problems can often be the root cause behind cash, supply chain and process issues that are keeping your business down. Determining and adjusting these accordingly is a crucial step, and one that an outside consultant can offer plenty of value towards.
• Increase net asset turnover: restructuring is a time to place your operating and non-operating assets under the spotlight to understand exactly what potential cash generators for your company are and aren’t useful. For those that fall into the latter category, selling them can help alleviate some of the financial burden you find yourself with. This begins with non-operational assets, but if sale of these elements doesn’t suffice, you may need to consider the sale of operational assets, too.
• Restructure debt and capital: in today’s capital market where the lending landscape can be a dangerous one to traverse, it’s likely best to renegotiate with existing secured lenders rather than seek attractive but potentially hazardous deals with non-trusted lenders. To get the financing/repayment timelines you need to help you recover from overwhelming debt, stick with the lenders you already know well rather than seeking a magic solution elsewhere.

While no business out there anticipates or wants to see a financial restructuring process take place internally, restructuring has become a relatively commonplace solution for businesses looking to turn the corner from financial hardships. In a post-pandemic world where a lot of financial uncertainty remains, business owners should remain cognisant of the benefits a restructuring process can offer, should it be required.