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What You Should Know Before Restructuring Your Business

July 18, 2022

Are you dealing with ongoing issues due to supply chain shortages, rising inflation, pandemic concerns and more? You may benefit from restructuring. Here are our thoughts.

Rising inflation, the ongoing pandemic, supply chain woes and changing market dynamics have left many companies struggling and perhaps even contemplating bankruptcy. If your company is among them, you may have informal restructuring options that could put you back on the path to profitability.

Consider Your Options

The term “restructuring” can include several possibilities short of bankruptcy, such as:

  • Changing a company’s financial structure (for example, selling assets, raising additional capital from investors or refinancing debt),
  • Shuffling or replacing the management team,
  • Shutting down unprofitable business units or departments,
  • Shifting to a different product line, and
  • Reallocating employees and other resources to more profitable parts of the business.

Not every alternative is available to every company or at all times. For example, as interest rates continue to rise, it could become difficult to refinance.

One approach that is always wise to avoid, however, is cutting costs arbitrarily. For instance, by laying off employees or slashing the marketing budget, you could improve cash flow in the short term while hobbling the company over the long run.

You also should think twice about implementing across-the-board cuts (for example, 10% for each department). This strategy can leave vital departments under-resourced and destroy morale. You may have better luck aggressively pursuing outstanding receivables to increase the revenue side of the ledger in the interim while you mull the best option for your situation.

Select Your Strategy

When weighing the optimal restructuring strategy for your company, bear in mind its strengths, weaknesses and competitive advantages. They may have changed over time, so this analysis warrants some careful consideration.

Tap your employees for their input on what’s working and what isn’t in terms of processes and procedures, as well as their ideas for improvement. Some workers may be reluctant to share their opinions on such matters. So, you’ll need to provide a safe (perhaps anonymous) space to do so.

Once you settle on your restructuring approach, be realistic in setting your corresponding goals and targets. They should be achievable, with clear, understandable metrics that align with the overall strategy. And company leaders must understand that patience is key. Restructurings don’t produce solid, measurable results overnight.

Apply Change Management Principles

Restructuring creates a ripple effect across an organization, from management teams and IT systems to culture and compensation. Everyone will be affected to some degree.

Without getting employees at every level of the organization on board with the “new normal,” your restructuring plans likely are doomed to fail — especially in a tight labor market where valuable employees aren’t easily replaced. But change is daunting to many and requires proactive, transparent management.

Communication is a critical component. Although the nuts and bolts of the planning are understandably done at higher levels of the organization, you shouldn’t simply spring the final plan on your staff. Let employees know what’s happening and why. Highlight the effort that went into formulating the plan, and explain how they’ll benefit from the restructuring.

Workers need opportunities to voice their opinions, fears and ideas. You can do this through a combination of one-on-one meetings, departmental meetings and town halls. To boost buy-in among your internal stakeholders, identify those employees who could serve as “change champions” across the company. They can help promote the upcoming changes while also easing the minds of their colleagues.

Don’t Go It Alone

Restructuring is a complicated process. Contact us as soon as possible to assess your current situation. Our CFO Services team can help you evaluate your company’s options, communicate your game plan with stakeholders and get you back on the road to long-term success.

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