A term guaranteed to send shivers down the spines of your employees, ‘corporate restructuring’ shouldn’t always be feared. It is experienced by many companies at some point in their journey in order to improve their competitiveness and boost their profits.
Topics to be answered in this article
What is corporate restructuring?
Corporate restructuring is the act of restructuring a company’s hierarchy, internal arrangement, or operational procedures. Restructuring a company involves changing one or more aspects of a company, depending on their requirements and the wider performance of the market.
Any restructuring by a company is often perceived to imply that a company is going through a challenging financial situation. However, considering a company restructure should also be considered when a company is doing well and looking to grow. Learn more about Goughs’ corporate restructuring services.
Different types of corporate restructuring
Organisational restructuring
Organisational restructuring is the process of making significant changes to a company’s internal setup, which can include its hierarchy, departments, roles, responsibilities, and operational processes. This is often done in response to changing business needs, market dynamics, technological advancements, or financial challenges.
Organisational restructuring aims to align the company’s structure and operations with its strategic goals and external environment. This process may involve downsizing, merging departments, creating new positions, altering reporting relationships, and redefining workflows to optimise the company’s ability to achieve its objectives.
Asset restructuring
Asset restructuring refers to the strategic process of making changes to a company’s asset portfolio with the aim of improving its financial health, operational efficiency, or overall performance. This can involve buying or selling assets, reallocating resources, or changing the composition of the company’s assets to better align with its business goals and market conditions.
Asset restructuring can be driven by factors such as optimising resources, reducing costs, focusing on core competencies, or adapting to shifts in industry trends. Overall, the goal of asset restructuring is to enhance the value of the company by strategically managing its assets.
Financial restructuring
Financial restructuring is the process of reorganising a company’s financial structure in order to improve its financial stability, liquidity, and overall health. This typically involves making changes to the company’s capital structure, debt obligations, and financial arrangements to address high levels of debt, cash flow problems, or financial distress.
Financial restructuring can include a number of actions, such as:
Debt restructuring: Renegotiating the terms of existing debt agreements, such as extending maturity dates, reducing interest rates, or converting debt into equity.
Equity issuance: Raising new capital by issuing additional shares of stock to investors, which can help improve the company’s liquidity and balance its capital structure.
Asset sales: Selling non-core assets or divisions to generate cash and streamline operations.
Refinancing: Obtaining new financing arrangements with more favourable terms to replace existing debt or credit lines.
Capital injection: Infusing fresh capital into the company, often by attracting new investors or securing funding from existing shareholders.
Dividend suspension: Temporarily halting or reducing dividend payments to conserve cash and address financial challenges.
The primary goal of financial restructuring is to enhance the company’s financial position, restore investor confidence, and create a sustainable foundation for future growth and profitability.
Key benefits of corporate restructuring
Corporate restructuring is usually used to improve profitability and financial performance of a company, often by reducing its costs. There are many ways that a company can alter its legal structure and in doing so, this can help to reduce costs, increase profitability and streamline efficiency in order to adapt in today’s commercial market. Corporate restructuring can bring several key benefits to a company, depending on the specific goals and circumstances of the restructuring. The key benefits of corporate restructuring include:
Enhanced Efficiency: Corporate restructuring involves reevaluating and redesigning processes, workflows, and resource allocation. By eliminating redundancies, optimising procedures, and aligning roles, a company can operate more smoothly and with fewer hurdles. This improved efficiency often results in tasks being completed faster, costs being reduced, and resources being used more effectively.
Adaptability: In a rapidly changing business environment, the ability to adapt quickly is essential. Corporate restructuring allows a company to realign its structure and operations to better respond to shifts in the market, customer preferences, or technological advancements. This agility enables the organisation to seize new opportunities and navigate challenges more effectively.
Focus on Core Strengths: Companies often accumulate various divisions, products, or services that might not align with their core competencies. Through restructuring, a company can divest non-core assets or business lines, allowing it to focus on what it does best. This strategic narrowing of focus helps the organisation excel in its strongest areas and allocate resources more efficiently.
Financial Stability: In cases where a company’s debt burden is high or its financial health is compromised, restructuring can be a lifeline. Financial restructuring involves actions like renegotiating debt terms, raising capital, or optimising the capital structure. These efforts can lead to improved liquidity, reduced financial risks, and a more stable financial foundation.
Successful corporate restructuring involves aligning these benefits with the company’s overarching goals and gaining the support of various stakeholders throughout the organisation.
How can restructuring a business increase profits?
If the aim of the corporate restructure is to increase profits, usually either costs need to be reduced or alternatively, the company needs to improve its efficiency.
As part of the corporate restructure, we would work with you and your accountant to establish exactly what you are trying to achieve and how the legal structure of your company can assist in increasing its profitability.
The types of actions we may suggest could include:
- Outsourcing
- Specialisation
- Joint venture agreements
- Merging with or acquiring another business
- Group company structures
Restructuring to leave behind a lasting business
Another common reason to restructure your business is to allow key individuals to retire. At Goughs, we understand that leaving your business behind to retire can be a stressful process, with concerns about the viability of your business once you’ve left. To help alleviate this, we can discuss and implement the necessary changes to make the process seamless and stress free.
On the subject of planning for your future, our Private Client team can advise you on a personal level to help you plan for your Wills, Trusts and any other matters to put your mind at ease during retirement.
How Goughs can help with restructuring?
Corporate restructuring can be an essential tool to increase a company’s profit and decrease its costs. At Goughs, we have the necessary legal expertise to advise you on how corporate restructuring can improve the way in which your company operates.
Please get in contact with us today to learn more about how we can assist you.