Restructuring a company is as easy as restructuring a small nation, but with more worries about the lack of snacks. It makes sense that the company reorganization process could go horribly wrong without adequate planning. In fact, it’s not uncommon for upper management to reorganize the entire business on paper with little to no input from HR, announce the reorganization in a meeting or via email to the entire company, and then, when panic and confusion set in, act perplexed and irate over their workers’ reactions. Â.
When that occurs, the business has discovered issues or inefficiencies in just one department, but since a company is highly interconnected, what impacts one department frequently affects other departments. While reorganizing a department is undoubtedly simpler, it is not unheard of for businesses to make major changes to their entire organizational structure at once. Â.
What is business restructuring?
Why do businesses restructure?
Here are some reasons a business may restructure:
Bankruptcy
A business can declare bankruptcy to formally ease the financial pressure brought on by excessive debt. The company may be able to renegotiate unprofitable contracts and postpone or amend debts that it is unable to pay. The company creates a restructuring plan to show creditors and the court how they intend to improve their financial situation and uphold their obligations following a period of reprieve in order to take advantage of these benefits of bankruptcy. If the restructuring is successful, the business can get back on track financially.
Repositioning
A company might want to adjust its position in a shifting market, which would necessitate reallocating resources to a different division or shifting the company’s industry focus. For instance, if a business sells film for photography, its industry’s profitability has changed, necessitating the need for the business to restructure and concentrate on other aspects of its production that can make up for the lost profit. They might reorganize to become a technology company, which would call for the creation of new research and development teams and the allocation of resources to the sector.
Mergers and acquisitions
Sometimes businesses will acquire rival firms to expand their portfolios, capture new markets, or enhance supply chains. Because departments may become redundant or the reporting hierarchy may change as a result of mergers and acquisitions, the structures of both companies may change. In these circumstances, restructuring might be required to fully combine the operations of the two companies. Incorporating the assets and resources of the new departments can also increase the effectiveness of both operations.
Growth
Companies may occasionally go through restructuring when they experience rapid growth in order to take into account their new resources, customer demands, and staffing requirements. When a business needs to hire more employees and adopt more technology, it can be difficult to scale the management hierarchy that small businesses may have for a few employees. In these circumstances, restructuring might entail expanding your workforce, reassessing the capabilities of your technology, and changing your location. Making adjustments to make room for new resources can aid a business in expanding.
What is restructuring in business?
Restructuring is the process by which a company reviews the organization of its operations and makes adjustments to increase profitability. Companies frequently restructure their financial resources and operational assets to cut costs or boost performance. They might restructure their financial holdings to increase their access to liquid cash or boost their investment profile. Changes in personnel, organizational hierarchies, and resource allocation may result from restructuring. Restructuring is common when a business is having financial difficulties, but it can also come about as a result of a positive change.
How does restructuring work after bankruptcy?
If a business is reorganizing as a result of bankruptcy, there may be additional steps to be taken in terms of paperwork filing, contract negotiations, and debt reorganization. The steps to negotiating a restructuring after declaring bankruptcy are as follows:
1. Plan approval
A business has a limited amount of time to come up with a restructuring plan after filing for bankruptcy in court that guarantees they can continue to pay all of their debts. Their creditors may submit an alternative restructuring plan if they are unable to do so within the specified time frame. The court chooses a plan and names a trustee to supervise its execution. Following that, the business provides periodic reports on earnings and profitability as well as information about plan compliance.
2. Debt management
Along with their operational restructuring strategy, the company can include a debt management strategy in their bankruptcy filings. Some debt management programs available under bankruptcy are:
3. Liquidation
The court may dismiss a case, eliminating the support that declaring bankruptcy can offer, if a business is unable to regain its financial stability, carry out the steps of its plan, or fails to inform the court of its financial situation. Even though the debtor is no longer liable for their debts, this step results in the liquidation of their assets. The property of the debtor is taken over by the court-appointed trustee, who manages its liquidation and distribution to the company’s various creditors.
How does restructuring work in other cases?
The steps of restructuring may differ if your company is doing so to avoid bankruptcy, to make room for expansion, or to respond to an industry shift:
1. Examine your business strategy
When you decide to restructure, you can review your business plan to determine the direction the company is taking and the issue you hope to address within the company. Take into account your operations’ successes and potential improvements. Examine whether the issue you set out to solve when you founded the business still exists. If there is a way to improve your efficiency by refocusing the tools you use, you can also think about how you incorporate technology into your operations and business strategy.
2. Identify strengths and weaknesses
You can assess the current procedure in place at your company once you are confident in the restructuring strategy. Think about the successful initiatives you’ve carried out and how you can replicate that success in other areas. As the goal of restricting is to strengthen areas of your business that have lagged, you can also learn a lot from your weaknesses. Look for departments that aren’t recouping the money the business has invested in them. Additionally, keep an eye out for overlaps between departments or areas of your business that no longer correspond to your target market’s needs.
You can use performance reviews and quality tests to analyze your assets and how their departments are using them in order to determine your strengths and weaknesses.
3. Research options
You can get ideas for your company’s restructuring from other businesses in your industry. Altering the structure of your strategy or redesigning your personnel organization are some options. You can also examine businesses from other industries that have undergone restructuring through mergers, acquisitions, or repositioning. To assist in guiding your restructuring plans, research what other businesses did and how they repositioned themselves in the market.
4. Establish a timeline
Once you’ve decided what course of action to take, you can construct a timeline to specify the dates and times by which you want to carry out the various stages of your restructuring. Think about the changes that need to happen most immediately and how they might affect one another. Create a timeline of the tasks your business can complete in a reasonable amount of time by mapping out which actions are dependent on one another. You can present your ideas to others with more credibility if you establish this timeline. It can also provide a timeline for when your business will start to see the benefits of the restructuring.
5. Put your plan into action
You can put your restructuring plan into action once you’ve determined the timetable and tasks involved by sharing the plan’s stages with management. Informing employees that your business is undergoing a restructuring can help them get ready for potential changes to their departments. Additionally, it can make everyone’s transition to operational changes or performance evaluations easier. You can inform each team of the new direction by outlining the overall goal of the plan and the aspects of the restructure that will affect each department.
6. Make adjustments as necessary
You might encounter challenges as you restructure your business or discover innovative solutions that are better suited to your company’s financial situation. External market factors can also impact your restructuring plans. Restructuring is a procedure that has as its end goal enhancing your company and raising its profitability. You can adjust your strategy as necessary, add fresh perspectives, and address issues as they arise. To make sure you’re acting in the company’s best interests, you can also ask managers and executives for their input and forecast the timing of upcoming restructuring phases.
Disclaimer: This article is for informational purposes only and is not meant to be legal advice. If you have any legal questions, you should speak with a lawyer.
FAQ
What does it mean to restructure your business?
Key Takeaways When a business undergoes restructuring, usually under financial duress, significant changes are made to its financial or operational structure. Additionally, businesses may restructure as they get ready for a sale, buyout, merger, change in their overarching objectives, or transfer of ownership
What is the example of restructuring?
The sales tax and property tax sectors are two examples of restructuring that are frequently used. The first entails setting up a leasing company for working capital that can result in revenue tax and sales tax savings.
Why do companies restructure?
Corporate restructuring may be necessary to make financial adjustments to a company’s assets and liabilities or it may be necessary to change the organizational structure or business model of the company.
What does restructuring mean at work?
When a company decides it no longer needs a vacant position or the job description needs to change, there is a job restructuring. This may occur as a result of modifications to the market, distribution method, technology, or organizational structure.
