Suppose a business is somehow facing difficulty in liquidation or is somehow close to bankruptcy. In that case, the company can opt for chapter 11 bankruptcy, which grants legal space protection to a debtor to restructure their business. For a major type, financial or monetary restructuring is something that any company or corporate initially goes for.
In this article, we will tell you what business restructuring is and how it works? Read the full article to know more.
What is Business Restructuring?
Business Restructuring is a term that encompasses many different activities undertaken from time to time by companies to restructure their operations.
The sale of an entire business unit, the sale of a division or subsidiary company, a leveraged buy-back in which a company borrows money from one or more financial institutions to buy back its shares from the public market at prices above current market levels.
In most cases, when companies undertake Business Restructuring efforts, they must also work with their lenders and other creditors on various arrangements. Sometimes, there can be a case of reverse synergy also, and only after checking the individual and the merged unit, can a company go for further investment and economic restructuring.
How does Business Restructuring work?
Business restructuring can help companies avoid bankruptcy, generate cash, and restore value to shareholders.
The objective of the business restructuring process is to make the company’s assets more viable and improve its financial standing while at the same time increasing shareholder value.
The options available in business restructuring are: Acquisitions, Divestitures, Mergers & acquisitions, Leveraged buyouts, Staging Plans, Private Equity Financing.
The choice of the best method of business restructuring depends on the strengths and weaknesses of the company and its industry. For example, if a company cannot generate sufficient cash flow, consider mergers & acquisitions, divestitures or restructuring as methods of business restructuring.
Business Restructuring Planning:
Business Restructuring planning should begin by looking at options and strategic alternatives for corporate strategy and its structure.
Analysis of the financial statement to evaluate the company’s profitability, including projected cash flow, debt load, and short-term and long-term obligations.
Evaluate the corporation’s current creditworthiness and financial risk exposure and establish a basis for evaluating any alternative or proposed business restructuring process efforts.
Conduct a cost analysis to determine which alternative is best suited to meet corporate objectives while requiring the least amount of expenditure in terms of human resources, time, money, and effort.
Change in strategy can be a major landmark in reviving the position of a business. There can be a lack of profit so after checking the exact cash flow requirement by the company, the company can make a decision about the same.
The Utility of Business Restructuring:
Business restructuring is a flexible method of a corporate reorganization that allows for the reduction of cost and expenses and the increase of sales and customer base through external growth.
Business restructuring considers all assets of a company, including its human resources, physical property, and intangible assets such as trademarks, patents, or licenses, to determine how best to restructure the company for maximum benefit. Also, if a company needs a quick turnaround but has weak management, consider private equity financing as an option of business restructuring.
Business restructuring is a complex process that companies undertake to get out of trouble. The method includes many steps to achieve successful results.
This process should also include evaluating the strengths and weaknesses within the current status quo and any external factors that may shape or impact future success or failure. Next, analyze the current financial statement to evaluate the company’s profitability, including projected cash flow, debt load, and short-term and long-term obligations.
Evaluate the corporation’s current creditworthiness and financial risk exposure, then establish a basis for evaluating any alternative or proposed business restructuring process efforts.