Financial restructuring involves making significant changes to a companies’ financial structure and priorities, with the aim of making it more profitable. Restructuring is a practical business rescue tool used by businesses who are under financial stress and need to make changes to re-stabilise the company. When used alongside other business rescue strategies, such as a Company Voluntary Arrangement (CVA) or administration, financial restructuring is an effective way for struggling businesses to turn around their prospects. With this in mind, let’s take a look at the main methods involved in financial restructuring.
Debt Restructuring
When companies are falling behind on the debts they owe to creditors this can have huge financial implications. That’s why debt restructuring is such an important aspect of any financial restructuring plan. Debt restructuring is aimed at preventing companies from defaulting on payments by negotiating lower interest rates, extending due dates or refinancing. Part of this may involve agreeing to a repayment plan via a CVA in which a timeline for repayment of liabilities is agreed between the company and its creditors.
Cost Reduction
It’s only logical that an essential part of financial restructuring involves reducing costs where possible. This may involve streamlining the business by reducing the number of employees, and shutting down the areas of the business that are least beneficial. It will be important for companies to start by analysing the business carefully to assess which areas are the most profitable and which areas are the weakest in order to highlight overspend and assess where cuts can be made.
Divestment & Spin-Offs
Another essential aspect of financial restructuring is divestment. This involves selling off a company asset in order to raise capital or to save on running costs. Usually, businesses will assess which assets are least profitable and use them strategically in a divestment. A similar tactic used is a spin-off which involves restructuring a business unit to become a standalone company. The parent business will have a stake in the division whilst achieving higher valuation from its existence as an independent entity.
Mergers & Acquisitions
Merging with another company and absorbing their assets is another strategic way to increase profitability. This is a financial restructuring tool that enables businesses to rapidly increase revenue and market reach without the responsibility of building a new company. A company may engage in a vertical merger where they require a similar business that complements their current services, or a horizontal merger which involves joining forces with a competitor.
Companies may choose to use various aspects of financial restructuring in conjunction with each other, alongside other organisational restructuring tools. Ultimately, any company rescue plan needs to be tailored to suit the individual requirements of the company, meaning no two business rescue plans will be the same.
Financial restructuring can be the key to turning around a struggling business. If your company is facing financial difficulty, don’t hesitate to get in touch with the team at Ballard Business Recovery for confidential advice that’s tailored to your business’ needs.
