The current pandemic has thrown companies into chaos. As companies face new financial challenges and the growing risk of bankruptcy; many are considering restructuring in an attempt to save their businesses and increase profitability. It’s no secret that for a business to thrive; it must be able to adapt to new situations and pivot when the situation requires it. However, reorganizing a company can be a complicated and overwhelming process that without proper planning, communication and strategy can go terribly wrong. Having a plan in place will not only help you anticipate risks and issues before they arise but is key to successful corporate reorganization.
Because restructuring and reorganizing a company is a serious undertaking that could have a significant impact on the performance of the business and bottom line; it requires proper consideration, planning, and foresight. It’s for this reason that if you are considering this major undertaking for your business, you should consider consulting with financial management experts with experience in dealing with these types of transitions.
Let’s break down some of the reasons why companies choose to restructure and how the reorganization process works.
What is Corporate Reorganization and Restructuring?
Before we delve into why businesses choose to restructure, it’s important to first understand what corporate reorganization actually means. Broadly speaking, the corporate reorganization process is an overhaul of a business in financial trouble with the objective of restoring profitability or improving efficiency. In most cases, a company undergoing reorganization aims to address efficiency issues as a means to improve profitability.
Corporate reorganization often takes place only after the business has tried (but failed) to increase the value of the company through other means such as acquiring venture capital.
While it can vary depending on the business and its key objectives, the reorganization process may include actions such as letting employees go and replacing higher level employees, shutting down or selling parts of the business, or cutting costs and lowering budgets. Generally, company restructuring can be done on the company level (i.e. reallocating resources to other parts of the business) or on the financial level (i.e. selling off assets or refinancing debt).
Why Do Companies Go Through Reorganization?
There are a number of reasons why a business might choose to reorganize their company depending on the issues they are facing. Below are just a few examples:
- If the business is not performing optimally or meeting its anticipated goals. For example, if the company or employees have become inefficient or important tasks have been falling through the cracks.
- If a top level employee has left the company leaving a vacuum; providing an opportunity to reevaluate the company on a whole. For example, a new CEO might have a different vision for the direction of the company or choose reorganization to fix some of the issues the business is facing.
- If you plan to acquire another company or are dealing with a potential merger.
- If consumer behavior or your customer’s needs have changed.
- If the company is facing or planning to declare bankruptcy.
- If any division or subsidiaries don’t comply with the company’s strategy, reorganization can help bring back focus to the companies long term vision.
- If there is a risk of economic loss due to an insufficient undertaking resulting in difficulty covering capital costs. For example, if market trends or changing consumer needs are putting the company in debt and hurting the company’s bottom line.
- If the sum value of the business is worth less than its individual parts. This is also referred to as reverse synergy and could be a sign that it’s time to restructure the company or consider divesting poor performing divisions to a third party.
How Corporate Reorganization Works
No matter what your reason for reorganizing your business; having a step by step plan for execution in place can determine whether these changes will be successful and well-received by the rest of the company. Here are a few steps for restructuring a business to get you started:
1. Understanding the Issues and Developing a Clear Strategy
To start, you need to define your reason for restructuring the business and develop a fool-proof strategy to achieve those goals. Without a proper understanding of the reasoning behind the transition, it can be difficult to make the necessary changes and move in the right direction. Make sure you have a clearly defined strategy that aligns with your long term business goals you can work towards.
2. Defining What’s Working and What’s Not
Evaluate which aspects of the business are failing and what is working. Try coming up with a list of the potential reasons the previous structure wasn’t successful. This will help you avoid these pitfalls moving forward and the opportunity to rely on the company’s strengths. A thorough understanding of a company’s strengths and weaknesses can be vital to success and making positive changes for the future. Through proper evaluation, you can maintain your strengths while simultaneously eliminating weaknesses at the same time.
It can also be a good idea to reach out to current employees for feedback. In many cases, employees have valuable insight into areas of the business you might not be aware of. Reaching out to your team can also serve to help them feel valued and heard; which can help overall productivity and acceptance of the upcoming changes.
3. Creating a Reorganization Model
Develop a reorganization model that clearly defines roles and responsibilities. The model can also incorporate where employees’ skills and expertise lie. While the structure might change as you begin to execute your plan, this type of model creates a visual representation of what needs to be done and helps keep employees and stakeholders on the same page as to what might be changing.
4. Communicating With Your Team
After you have your model and have decided on the best course of action, explain what you are planning with the rest of the company. Communicate in clear terms what the new model depicts and could mean for the people involved. Clear communication and transparency is essential when delivering the news to your staff; especially for those in a higher position as they may need to answer questions and ensure that everything is running smoothly. It also plays an important role in overcoming employee resistance to change; which is one of the more common obstacles companies experience when attempting to restructure.
5. Executing Your Reorganization Plan
Now that you have your plan in place and have communicated your intentions with the rest of the company it’s time to implement the reorganization process. As you move forward, you may realize that further adjustments need to be made to ensure you are meeting your goals. However, before you start making changes, remember that there could be a learning curve. Give your team a chance to acclimate to the new structure beforehand.
Consulting Financial Management Experts
Reorganizing a company can be an exciting time. When implemented correctly it could resolve operational issues, increase profitability, and improve overall efficiency. However, without the right plan and execution, it can go terribly wrong. That’s why if you are considering restructuring a business; it’s best to consult a financial management company to help you through the process. These businesses have vast experience dealing with companies in financial hardships and know how to avoid common pitfalls that could make or break your company.
If your business is in debt or considering bankruptcy, before turning your business upside down; contact the experts at Reorganization Management Group for help. We have a diverse background in debt relief and turnaround services and can help make your business more successful and your life more rewarding.
Whatever your financial dilemma may be, we have commercial services that can help you. Contact us now at 866-364-9161 and ask to speak to an advisor or you can fill out a no-cost/no-obligation form.
