How is Corporate Restructuring a Solution for your Business Failures?

It is extensively believed that how a business grows could be classified as organic or inorganic growth. Organic growth comes from standard or unique internal business tactics, strategies, and decisions that enhance revenue numbers, sales figures, profit margins, and customer base. Such choices don’t impact the business entity’s corporate structure.

There are times when business organizations attempt to grow at an accelerated speed through inorganic growth. It helps identify synergies and opportunities in different organizations and acquire these targets. Such development, however, may bring about a change in the corporate entity.

However, there are times when a business isn’t capable of generating enough revenue, primarily because of reasons that might hurt to failure. During these situations, a company gets saved from complete closure through corporate restructuring strategies salvaging the value of a failing business.

What is Corporate Restructuring?

Corporate restructuring is a process that changes the organization of the enterprise. This process changes the entity’s business model, management team, and financial structure to address the current challenges sabotaging its growth and increasing the stakeholder’s value.

Corporate restructuring involves employee reduction at any level or even bankruptcy. The restructuring process is designed to reduce the employee impact, and statutory laws protect the employee interest before anything else.

What is the Scope of Corporate Restructuring?

The scope of corporate restructuring includes some features. These are cost reduction, generating significant profits, enhancing economies of scale, and improving efficiency. However, to grow and thrive, sometimes a business may need restructuring and focusing on the competitive edge. Corporate restructuring may, however, sometimes require different strategies and processes at other times for various enterprises and a common goal in varied restructuring cases. It is because it helps eliminate the disadvantages and consolidates all the perks.

Therefore, the experts consider corporate restructuring as both a growth and a correction strategy.

What are the Different Forms of Corporate Restructuring?

It may seem not very clear when comparing different commentaries on corporate restructuring’s conceptual study. It is because some authors may refer to it as a “type” of corporate restructuring, the others may believe it to be a “strategy” of a corporate reorganization.

However, all of them may be correct. And it is of paramount importance to keep in mind while studying the works of different authors on this subject matter.

• Financial Restructuring:

The restructuring of different aspects of a business comes into being when the going isn’t vital and there’s a considerable fall in the company’s revenues. It may be because of internalities, externalities, or adverse economic conditions.

The management may sometimes select to change the equity patterns, the cross-holding patterns, debt servicing schedule, market sustainability, cost reduction, profitability returns, and more.

“When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”

-Warren Buffet.

Some other initiatives under the financial restructuring include:

1. Reduction of tax liability
2. Outsourcing
3. Relocation of operations
4. Diversification of unproductive assets
5. Debt refinancing, and many more.

• Organizational Restructuring:

Restructuring the organization may help businesses run more efficiently and become more profitable due to its well-executed and planned nature. It also means changing the organizational structure by reducing the hierarchy levels, removing the underperforming or excess employees, redesigning the job positions, and changing the reporting structure.

Some initiatives of organizational restructuring include, but aren’t limited to:

1. Business Regrouping
2. Decentralization
3. Corporate Strategy
4. Portfolio Restructuring, and more.

“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”

-Warren Buffet.

What are Corporate Restructuring Strategies?

Now that you know the essence and importance of corporate restructuring, it is vital to know some strategies to make the process fruitful. Some methods that prove helpful for long-term business growth are:

Mergers: Mergers are a strategy for merging two or more businesses through amalgamation or absorption. Since there are different types of mergers, it is crucial to understand the classes, which may be horizontal, co-generic, vertical, or conglomerate.

Demerger: In Demerger, some business operations of an entity may find segregation into one or even more entities. The demerger strategy’s significance is unlocking the value of a particular business model and enabling smooth and more focused operations.

Disinvestment: It is a strategy where a conglomerate, an entity, or a government sell or liquidates a business unit or an asset.

Takeovers: Also known as acquisition, a takeover makes the acquirer gain control of a target company to achieve market supremacy. Business giants usually consider it as a friendly or hostile takeover.

Joint Venture: It’s a corporate strategy where two or more companies establish an entity for undertaking a financial activity together. The enterprises agree to contribute equity for forming a new entity and share expenses, revenues, and company control. The joint ventures are set up for fixed periods and may either be functional or project-based.

Strategic Alliances: Strategic alliance is an ongoing agreement between two or more parties for collaborating and achieving particular objectives when continuing independent enterprises.

Slump Sale refers to a transfer of one or more enterprises or undertakings as a “growing concern” and for a lump-sale value without any particular values being assigned to the individual assets or even the liabilities.

These are some of the most popular strategies businesses may employ to enhance revenues and save themselves from failure. All they’ve to do is know and understand the process.

“Risk comes from not knowing what you’re doing.”

-Warren Buffet.

How does Corporate Restructuring Save from Business Failures?

As mentioned above, if a business downsizes during the middle of restructuring, there are chances for operational costs to decrease significantly. For instance, the payroll expenses will be less if a company dismisses some employees. In the same way, outsourced operations are much less expensive than in-house labor.

The cost of running and maintaining operations within the retail network and the organization would decrease with restructuring.

The business eliminates the layers of management during the restructuring, helping decision-making and communication improve. Experts show that simplifying management reorders the company’s organizational structure and opens doors to simplified lines of communication, removing all the hurdles to productivity.

Finally, business restructuring introduces new technologies and helps enjoy increased operational efficiency. It’s because the records become more accurate and are easier to access with the business implementing a computerized filing system.

The Conclusion

Corporate restructuring is a broad term encompassing numerous strategies to rescue failing businesses and unlock new growth potential. Whether you wish to upgrade the technological infrastructure of your business, cut out the existing inefficiencies, optimize particular finance, or be saved from inefficiencies, corporate restructuring is your key. And the best part is that the proper assistance from professionals like Voyager Partners can help you navigate to an apt solution for your business.