These are certainly testing times for our economy, with the Covid-19 pandemic continuing to have a notable impact on UK businesses as they look to resume normal operations.
Some companies have been forced to stop altogether during the lockdown, while many more have adapted their working ways to the current economic climate.
However you’ve used your time – whether that’s training staff or compiling cash flow forecasts – now is the perfect time to work out the best way to take your business forward.
If you’re a business owner or a company director and you are worried about the coming months and years. One step you may not yet have considered is restructuring, which can significantly aid a business’s recovery if done correctly.
Why would I need to restructure my business?
Restructuring your business means improving its operational, financial, legal, or other structures to maximise profit and ensure your operation is as efficient as possible.
The restructuring comes in two primary forms: financial restructuring, when businesses have debts and tax considerations they may be struggling with, and organisation restructuring, when a company’s organisational structure has become inefficient.
In the case of an effective business restructuring, you will need the joint efforts of business experts, your management team, and any key shareholders.
If you choose to restructure your business, it’s usually because it is faced with financial challenges or going through a formal insolvency process such as administration.
You may also decide a restructure is a suitable solution if you want to change something within your company.
This can be due to financial reasons or macro- and micro-economic factors that can change how a company operates. The Covid-19 outbreak is a prime example of this.
When is restructuring right for my business?
The first factor you should consider is which form of corporate restructuring is right for your business. Typically, it comes down to one of the four following reasons:
Expansion: Perhaps you have decided to buy another company, are thinking of developing a different way of working, or are incorporating a new business strategy?
Financial distress: Your business is losing money because costs are too high, and debts are growing to an unmanageable level – meaning you are having difficulty or are unable to pay your creditors.
Legal compliance: New legislation may have come in, which means you are subsequently forced to review your process or introduce new processes which need to be adopted quickly to fit into your existing business structure.
Management changes: Any expansion or growth may have made the management structure more complicated than it needs to be.
What are the advantages of restructuring?
Restructuring doesn’t just reflect the current position of your business; it also allows it to reposition itself for what it may look like going forward or in the future.
This restructuring process is usually highly beneficial, so it’s not something you should feel you need to avoid. However, no hard and fast rule says your company has to continue to operate in the same way as when it was founded.
What are the different forms of restructuring?
There are several different types of restructuring, all of which depend on the reason you have chosen in the first place to restructure your business.
Your company’s running costs are likely too high if you face a growing amount of debt.
Therefore, it’s hugely beneficial to review your business structure, whether its administration or operational departments.
Ways to reduce costs include selling unneeded assets to raise cash, reducing the number of employees, or restructuring individual departments to remove unnecessary management costs.
You may be able to restructure your debt and continue trading by introducing a Company Voluntary Arrangement (CVA).
The arrangement means all of the company’s debt can be transported into one manageable monthly payment, so it can carry on trading without having to worry about the threat of liquidation or winding-up orders, petitions, or liquidations being threatened.
A CVA can be an effective method of solving severe debt problems, and in five years or less, your company could be legally debt-free. Once the CVA is completed, all debt should be written off.
Read more about CVAs
Corporate restructuring may be necessary not because your business is struggling but simply because there is a shift in responsibilities at the top of the hierarchy.
This may include a change in the ownership structure or adding new investors.
Mergers and acquisitions
One of the best ways you can quickly increase your business’s profitability is to incorporate an existing company into yours – whether that’s buying it outright or merging with another company and absorbing its assets.
Mergers and acquisitions can allow your business to rapidly increase its revenue, production capacity, and market reach and avoid the time and hard work of building a new company.
Divestment and Spin-Offs
Divestment means that if part of your business is no longer profitable or fulfilling a strategic purpose, you could sell it to raise capital or close it to save on running costs.
If you wish to reduce your involvement in a unit of your business without entirely stepping away from it, a spin-off might be a better solution. This involves restructuring the unit to become its own standalone company, which you will still have a stake in.
If you think your business is likely to struggle financially in the near future, it’s essential to seek professional advice – so contact us today.
Please get in touch for a free consultation on how Future Strategy can support your business through restructuring.
We will assess the company’s viability and offer advice on appropriate strategies. We will also advise on the solution options available concerning your specific situation and requirements. These solutions are wide-ranging, cost-effective, and flexible.