Business

Financial Restructuring for Business Success

August 3, 2020

Financial Restructuring may be the answer to your company's finance woes. Learn step-by-step how to restructure your company's finances.

A hand removing a Jenga Block from a stack - financial restructuring is like Jenga

Help Your Business Recoup with Financial Restructuring

The financial aspects of running a business are arguably the most stressful. Now, with so much uncertainty, it’s even more stressful. However, there are some steps you can take to tilt the financial scales of fate in your favor. Financial restructuring is a way to evaluate your business to find what is and is not working.

Along with that, a proper restructuring includes re-arranging your organization and debts. You’ll also need to take a deep look into your employees and other key aspects of your business. Although these tasks seem monstrous, it’s not as overwhelming when broken down into steps. In this article, we’ll look into what restructuring is, how it can help, and how to tackle it in 5 steps.

What is Financial Restructuring?

First off, you might be wondering what financial restructuring is in the first place. It means modifying and restructuring the financial aspects of a business to make it more profitable than it is. It’s essentially streamlining your business to run as lean as it can. A business may need to do this to ease any financial pressures or to brace for upcoming pressures.

Companies can restructure their finances by looking at various key aspects of the business. This can range from cutting costs, adding or adjusting shareholders, rearranging debts, etc. No matter what it is, you must fix the issues to successfully move forward. If not, you could be the next victim in the trail of COVID’s closed small businesses.

A sweating piggy bank being crushed by a large rock on it's back. One of the reasons for financial restructuring is financial pressure.

Why You May Need to Restructure

Now that you know the ‘what,’ let’s take a look at the ‘why.’ If there’s ever a time to take a deeper look at your business and make sure it’s running properly, now is that time! With everything so upside-down and different, it’s a great time for at least a once-over. Even better, you can fully evaluate your business’ finances to see what is and is not working right now. This is especially true if you’re experiencing poor performance.

If your business is struggling right now, don’t fret. Before you throw in the towel, try a financial restructuring first. With a little work, you may be able to re-arrange your business’ financial aspects for better success. You may even be able to take advantage of better opportunities that weren’t available before.

Debt

Debt is another major reason businesses have to adjust their finances and restructure them. Right now, it’s understandable that many businesses may be dealing with additional debt. While the government is doing things like lowering interest rates encouraging homeowners to refinance, introducing a Paycheck Protection Plan, and other adjustments, it may not be enough depending on your business and industry.

So while taking on new debt may be the best way to save your business at the moment, it’s important to restructure to account for that debt. This way, you’ll not only ensure your business is receiving additional assistance through this newly acquired debt but also reaping as many benefits as possible.

The Steps of Financial Restructuring

No matter the reason, you’ll hopefully understand the benefits of restructuring your business’ finances. While it seems like a daunting task, it’s more manageable when broken down into steps. Read on to learn each step to restructure your business.

A hand arranging building blocks that say "step by step" creating steps - financial restructuring is a step by step process.

1. Assess Your Financial Situation

First thing’s first – before you start adjusting any finances, you’ll need to assess everything. Aside from the obvious financial aspects, you’ll also need to take a deeper look into your company as a whole. Consider any areas that seem to be costing or losing money excessively. We’ve all heard the saying, “it takes money to make money,” but at some point, you may just have to cut your loses.

A hand holding a pen up to a fluctuating chart - part of financial restructuring is analyzing finances.

Additionally, think about any products or services that aren’t regularly bringing in an income anymore. If something is in a stagnant phase, it may be time to cut it loose until you’re able to invest again (or not). Maybe there’s a task that takes up a large chunk of employee’s time but has a terrible Return on Investment (if you need help calculating your ROI, read here). Whatever the loose end might be, fix it!

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What’s great about evaluating all aspects of your business is that you may permanently remove something you didn’t realize was dead weight. If you’re not sure how to properly analyze your financial information, take a look at our article on how to conduct a financial analysis here. After collecting all of your financial and profit data, it’s time to look at other aspects of the business.

2. Operational Improvements

Aside from financial improvements, there are also operational improvements that may help your business. As we said before, all aspects of your business need to be studied. Look into how money is spent and returned (ROI)but also take a look at who is making those decisions. Is there one manager that continually spends money on things that don’t bring money back in? The decision-makers might be the ones needing reconsideration.

A grey scale hand that has a red octagon on it with the word "unemployment"

As the nation’s unemployment numbers reach an all-time high, it’s obvious that many business owners are seeing employees as a high-cost resource. This is understandable, especially if you consider the companies that offer full health care coverage. So make sure our team is working for you instead of unintentionally against you.

Along these same lines, look at team productivity. If there is one team or department that seems less productive than others, look at the why. It could be an improper delegation of tasks and direction, or it could be that one particular employee is not a great fit. While this is probably the hardest of decisions, remember you’re running a business. That can’t be sacrificed for someone that is actually a detriment to this business instead of an asset.

3. Evaluating Vendors and Operating Costs

The next step of financial restructuring is to look at your vendors and operating costs. Determine which of your vendors are crucial to operation, and which can be cut. If you still owe the vendor, make sure you can afford to close out with them and that it’s of a high enough priority compared to your other situations.

Along with this, you should also look into your own customer accounts. Are there customers that have past due bills on their accounts? Think about whether or not you’re in a position to close client accounts. If you’re able to help others that may be in a tough spot economically, you can extend credit to these customers. Do what you feel is best for you and your business.

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4. Selling Assets

All of the above steps could lead you to a decision to sell some of your assets. Whether it’s necessary to remove dead weight, or it’s an expense that you can no longer afford, it will help with our next step. However, it’s important to fully evaluate the value of those assets. We’ll explain how capital plays into the restructuring of finances next.

A man carrying a very large box that has the word "DEBT" printed across the sides.

5. Debt and Capital

The final step in the financial restructuring is to review your debts and capital. If you’re accruing additional debt to survive this difficult time, this is especially important. Improper planning and structure of your debt could lead to disaster.

On the other hand, if you need to accrue additional debt for the sake of your restructure, part of your plan may be showing off your company’s capital. As we’ll mention later, you may need this capital to negotiate the terms of debts. Most agencies aren’t willing to adjust repayment or loan terms unless the client can provide some form of capital.

We’ll explain the benefits of using a third party that specializes in restructuring in the next section. We wanted to mention one big plus here though – negotiation. If you choose to use a third party, they’ll likely have more negotiation tactics and leeway. Some of these specialists can negotiate terms for your repayment plans much better than you could on your own.

Restructuring with a Third Party

Now that we’ve gone through the DIY approach, let’s take a look at pairing up with a third party. As we’ve previously mentioned, usually businesses decide on a financial restructuring because they’re struggling. However, if you’re financially able to, you can hire a third party to undergo this task for you.

As with any task, it’s best to have an expert in your corner. So of course, hiring a third party expert or advisor to restructure your business is ideal. So if you’re financially able to, heavily consider this option. It would also likely be faster and much less stressful for you as the business owner.

businessmen sitting at a table, taking notes, with a chalkboard that says, "Preparation is the Key" in the middle of the table.

Whether you decide to tackle this financial beast on your own or with an expert, you’re making a good decision! While we’re in the middle of a national pandemic, it helps to prepare. If anything, it’ll help control your stress levels, and right now we can all use a little help with that.


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