If you’re a business owner, chances are you may feel that the term “Restructuring” does not apply to your business. That may be because you associate the word with a business that is struggling, nearing bankruptcy or already in bankruptcy. The fact of the matter is that many of the best run companies in the world restructure their business on a regular basis. When your company is healthy and strong is the best time to consider a restructuring process. In fact, if a business is in or nearing bankruptcy, it may already be too late for restructuring to be effective.
There are typically three different types of restructuring that a company can undertake: financial, operational and strategic. A combination of these is commonly referred to as Corporate Restructuring. For healthy companies, they can be conducted separately, but for those under stress, it may make sense to engage in all three types of restructuring concurrently in order to have the most significant impact in the shortest period of time. In this article we will explain the three types of restructurings and how they can help your business.
Financial Restructuring
Financial restructuring is the process of reorganizing a company’s existing financial structure to match its’ short-term to long-term capital needs. A business, by its very nature, is in a constant state of flux and as a result, its financing needs are continually changing. The art of restructuring is determining a capital structure that is most appropriate for a business’ changing capital needs.
A critical aspect of financial restructuring is ensuring that the existing capital structure (debt and equity) is appropriate for the company’s current income, forecasted income and revenue growth plans. As a business owner, you need to keep a close eye on your current financing agreements and understand how specific changes in market conditions, revenue, costs and profitability can affect your ability to meet existing loan covenants.
Lenders like a clear picture on which to base their financing decision. You need to proactively develop and maintain a current business plan that allows for a range of scenarios of the future financial performance. Pro-active planning should give your lender a clear picture and increase your chances of renegotiating debt.
Financial restructuring also includes the implementation of processes to track the flow of cash in and out of your company by creating a weekly cash flow forecast, typically looking forward 13 weeks. This allows you to identify any gaps you may have on the horizon and provide plenty of time to address those capital requirements.
Another component of financial restructuring is to identify your key vendors and customers and negotiate better terms with them. Your aim should be to reduce the cash conversion cycle, i.e. extend payment terms with vendors and shorten payment terms with customers. We would recommend, however, that you carefully plan and rehearse these negotiations, so as not to appear in distress. You should have a clear and credible message about the future of your company.
Operational Restructuring
Operational restructuring refers to the process of analyzing and improving the core and non-core operations of your business. This can be anything from lean techniques, implementing better operational systems and processes to analyzing capacity utilization and improving efficiencies. In certain circumstances, it may lead to elimination of product lines, services or entire divisions that are a drag on the overall performance of the business.
Benefits of operational restructuring include improving profitability and better leveraging the existing resources of your company. It may involve implementing new systems, processes and tools to better track, monitor and adjust the operations of the business.
Strategic Restructuring
As market conditions change over time, it is important to adjust your business strategy to stay ahead of the competition. Strategic Restructuring is the process of evaluating and adjusting your strategy given current and anticipated market conditions. It also considers the different opportunities that exist to pursue revenue growth.
Subtle shifts in the market are often overlooked. These shifts often develop into major trends. Unless you are on the lookout, it is easy to miss the early signs of change and suddenly find your business struggling where others are picking up market share. Management need to recognize changing conditions, make appropriate and actionable plans and continually adjust their strategy accordingly.
Conclusion
The corporate restructuring process is for all companies, not just those in trouble. It is critical for market leaders as well as market laggers. And what you will find is that the mere process of evaluating a restructuring of your company will yield significant dividends, not only in performance and the ability to make better decisions, but may also uncover data, information and trends about your business.
And please don’t be nervous about talking to a restructuring professional, advisor, or whatever else you may want to call us. We know that we are not an expert in your business. Whether or not we have worked in your industry for years, we will never know it as well as you. Lack of specific industry knowledge, however, doesn’t affect our ability to make a real difference to your business. Whether it is guiding you to implement better systems and processes, streamline your business, identify new cost saving techniques or new revenue opportunities, there is nearly always a benefit from a trained set of eyes guiding you through a restructuring process.
In the end, we help you make better decisions. We give you the tools and structure to better analyze your business and deliver critical business improvement.
All rights reserved. Copyright: ClearRidge Capital, LLC, 2010. About ClearRidge Capital ClearRidge Maximizes Enterprise Value as a business, financial and strategic advisor to midldle market businesses, banks and law firms. ClearRidge’s Team have completed M&A transactions, provided restructuring advice and secured new and replacement capital for midsized companies across the US and Canada. Mergers and Acquisitions includes buying, selling, merging and valuing midsize companies. Restructuring includes financial, operational and strategic restructuring. Corporate Finance includes advisory for raising and replacing debt and equity to provide the lowest cost of capital. Turnaround, Bankruptcy and Crisis Management services include debtor and creditor advisory, bankruptcy support and turnaround management. We provide top tier advice and relationships with Middle America values. For further information, visit www.clearridgecapital.com.
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A corporate restructuring process is for all companies, not just those nearing bankruptcy. It should be seen as an opportunity for improvement. Most companies borrow money from banks and international business loans to fund their restructuring plans, and a number of companies are already reaping the benefits of restructuring. Yesterday, I read in our local paper, that a multinational manufacturer of food and home care products has grown in sales by 5 per cent. From where I stand, we are living in a competitive world of business, change is inevitable especially if we want to stay in the game.
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