Why firms should consider financial restructuring and recovery in the current business landscape
Summary
As the business and finance environment continues to battle growing demands, vast technological advancements, competitive business environments and quickly saturating markets, measures need to be taken by firms to act towards changing priorities and objectives through financial restructuring and recovery. Businesses often undergo restructuring through good and bad times. In this blog we talk about the types of financial restructuring and when businesses may have to restructure processes and operations. There is growing importance for businesses to undergo restructuring to achieve operational efficiency, financial stability, legal compliance, stakeholder satisfaction, and process optimisation.
The business landscape is always prone to change, which makes decision-making difficult and tedious. Constant volatility, dynamism, and structural change result in an abundance of risk in the business arena.
As the business and financial landscape is constantly evolving, business owners and employees alike must keep constant watch over the many factors that affect the business landscape. These are:
- Economic change
- Technological advancement
- Social determinants
- Environmental changes
- Competitive pressures
- Infrastructure and innovation
- Legalities and regulatory requirements
- Consumer behaviour evolution
What is business financial restructuring?
Financial restructuring is the reshaping of a firm’s business structure, strategy, and processes to keep it aligned with financial targets and objectives.
Once a business undergoes financial restructuring and recovery, it is likely to see a betterment of financial performance and processes, alongside stability, quality, and enhancement in management procedures. The end goal of business financial restructuring is to pave the way for objective achievement.
When do businesses need to be restructured?
Restructuring is mostly done when businesses are facing complications in prospecting. However, restructuring and recovery can be done whenever a business feels like it needs realignment and reconsider its priorities and goals.
Businesses often opt to undergo financial restructuring and recovery when facing:
- Financial distress
- Cashflow constraints and cash insolvency
- Poor budgeting techniques
- Imminent bankruptcy
- Poor credit ratios and score
- Issues of mismanagement
- Issues in finding and retaining talent
- High employee turnover and leave rates
- Demotivation and low morale among employees
- Higher errors and inability to meet quality standards
- Expansion and growth
- Mergers and acquisitions
- Structural business changes
- Incorporation of new business strategies and plans
- Growing product portfolio and market segmentation
- Legalities and economic conditions
- Introduction of new laws/regulations
- Changes in business environment
- Settling into economic fluctuations
- New compliance and industry standard requirements
The process of financial restructuring
Depending on the reasons for financial restructuring, a business may have to implement a strategic plan for settling assets, coordinating management, and optimising operational processes to meet objectives.
The process of restructuring generally goes through the following stages:
- Identifying the areas that need improvement, supervision, and restructuring
- Conducting a SWOT analysis to identify short-term and long-term strategies
- Conducting a budgeting and cash flow analysis to identify the present resources that can be utilised to conduct the short-term strategy
- Evaluating the processes and strategies that have been laid out
- Getting feedback and reviews from stakeholders on the implemented agenda
Types of financial restructuring and recovery
There are several types of ways that an organisation can revive its financial position. They are:
- Divestment
This is the closure and sale of an existing business because it is underperforming or not meeting expectations and objectives.
- Mergers
This is when two or more companies integrate their operations, processes, resources and objectives under one business name.
- Acquisitions
This is the purchase of one organisation or firm, in the form of buying most of the listed shares—more than 51%—by another company.
- Legal restructuring
This is restructuring that allows a firm to switch up its processes, practices, and objectives to fall in line with regulations.
- Cost restructuring
This is done to create stability during dips in profitability when cost-cutting methods are implemented—most often during recessions.
- Repositioning restructuring
This is done when a business wants to restructure its business focus and model to fit the objectives, purpose, mission, and vision.
- Turnaround restructuring
This is a complete revamp of an organisation—restructuring and replacing the culture, business model, vision, mission and processes.
- Spin-off
This is a form of divestment that converts strategic parts of a business to separate entities with different objectives and priorities.
Why do businesses undergo financial restructuring and recovery?
The main reason for undertaking restructuring and recovery is to pave the way for operational efficiency, financial stability, legal compliance, stakeholder satisfaction, and optimised processes.
Understanding and implementing financial restructuring will aid a business in making informed decisions, taking the wider stakeholder base into account. This will provide insight into how a business can improve processes that adjust to present trends and stakeholder requirements.
With restructuring, a business knows what to avoid and keep in mind the next time hurdles occur in the business environment. In this sense, restructuring can act as a learning curve.
Restructuring aids in better communication within the organisation and unlocks new opportunities for a business to learn from and grow.
Restructuring helps a business cancel out all barriers that prevent the achievement of objectives, making processes more competitive and efficient.
Finance consulting can help restructure, recover, and revamp your financial performance and objectives
Business finance recovery and restructuring can be a tedious and time-consuming practice because it engages with the whole business hierarchy and is likely to affect how processes and operations are approached.
With growing demands, vast technological advancements, competitive business environments and quickly saturating markets, finance consulting can be the supplement that monitors and analyses the situation and draws up a plan that you can immediately implement and adapt to.
