What Does It Mean To Restructure?
Those companies that quickly identify that need when the time is right continue along a growth trajectory. Those that don’t struggle and often fail.
Most company owners and financial supporters think of restructuring as a negative activity; something to only be done when there is an operational or financial crisis.
Yet nothing is further from the truth. Business restructuring is the process of redesigning, realigning, and reorganizing, so as to position the business to be more competitive, survive adverse economic conditions and, sometimes, to move the business in an entirely new direction. In fact, the restructuring process, if planned and implemented in a timely manner, is designed to prevent the crisis that many believe is the event that triggers a restructuring.
No Business Can Continue To …
No business can continue to function the same way forever. With changing times and changing business conditions, restructuring is one of the main options for a business. For many businesses, restructuring is the best option and sometimes the only viable one, especially for a business that has taken too many hits from extended difficulties.
Even in the best of times, it’s important to be proactive, to monitor not just the company’s performance, but the health of markets, competitors, customers, vendors and lenders. But most importantly, businesses should always have a recovery plan; long before the need for one becomes critical. It’s twice as hard to develop a viable plan and alternatives in the midst of crisis.
Distressed Business Symptoms Often Occur …
Distressed business symptoms often occur well before a crisis occurs and before it’s known that the business may be entering a death spiral. And yet, at this point, a crisis is not in inevitable and in many cases the distress can be stopped and/or reversed. But, timely action is critical.
The study, “Best practices in Corporate Restructuring”, indicates that the critical time for the successful implementation of a restructuring process is the first six weeks.
A successful implementation process starts with clarity of positions, roles and responsibilities, and a clear identification of all functions within the business including; activities, tasks and levels of authority for decision making. Everyone must understand where they fit for the efficient operation of the business; what they are accountable for and how it will be measured.
Good Leaders And Management Understand …
Good leaders and management understand when the time for change has come and proactively take appropriate measures for the necessary changes to occur. Below are a few warning signs that potentially indicate that the need for restructuring is necessary
Profit growth has come to a screeching halt. If a business historically has had growing or, at least, consistent profit margins that start shrinking for an extended period, there is a problem that needs to be identified and rectified.
Turnover at the employee, customer level; or both is an early indicator of a problem. Customer turnover indicates a business problem while employee turnover indicates a certain amount of frustration. Employee frustration is infectious and will spread if not treated with the appropriate level of attention.
When inefficiencies are rampant and old systems no longer work, it probably means that a company has outgrown those systems that worked in the past. While efficient companies can grow business levels without continually adding more staff. Inefficient companies equate more business with higher payroll costs and reduced profit.
When the ball is being dropped constantly, the mistakes are generally the sign of misalignment, poor communication and lack of management. When employee frustration is high and systems and processes fail, rising mistakes and eventually customer dissatisfaction is inevitable.
In Many Cases …
In many cases, because existing management cannot see the need for change or is wedded to a certain way of doing things, when it comes to implementing a restructuring, stakeholders in a company often appoint an interim manager or a Chief Restructuring Officer.
The person in this position is a specialist in the process and normally brings together all of the tasks involved in the restructuring. The greatest impact often comes from having this person be directly responsible for the implementation of the restructuring process and acting as an honest broker on behalf of all interest groups. Their involvement is time limited and linked to measurable objectives; once these are achieved, the exit process begins.
Skilled restructuring management insures that a successful implementation of the restructuring is carried out, involves all relevant stakeholders, creates transparency and insures the company is positioned to meet its operational and financial objectives.