Business Restructuring Process

When a company is no longer profitable, is not achieving its business objectives, or is encountering human, financial or operational difficulties, restructuring may be necessary. The steps of business restructuring involve a systematic process that includes assessing the current business situation, identifying areas for improvement, developing a restructuring plan, implementing changes, and monitoring the results.

Business restructuring is a strategic process undertaken by organizations to make significant changes to their operations, structure, or financial arrangements. It often involves reorganizing departments, reallocating resources, revising strategies, or even making fundamental changes to the business model. Business restructuring can be driven by various factors such as mergers and acquisitions, market shifts, technological advancements, or the need to adapt to changing economic conditions. In this article, we will explore the key steps involved in the business restructuring process and how organizations can navigate this transformative journey effectively.

Steps of Business Restructuring: Navigating Change and Transforming Organizations

The company in difficulty may need to be restructured. Who says difficulties, says financial or even social impacts…

When a company is no longer profitable, is not achieving its business objectives, or is encountering human, financial or operational difficulties, restructuring may be necessary. This process is divided into 5 major key stages.

Step 1: The awakening phase

The first step in restructuring a struggling business is the awakening, or awareness, phase. It is a question here of making sure of the necessity and the stakes of this transformation. From the first warning signs, bring together the decision-makers in the company, as well as the heads of the main departments, and take stock, in an exhaustive manner, and with as much impartiality as possible on the problem encountered: crisis situation, disengagement of employees, drop in productivity, cash flow problems, drop in sales, ineffective commercial strategy… This audit must be carried out with great hindsight, and a lot of pragmatism and neutrality. It must cover all aspects of the company: strategic orientation, internal structure and organization, operational, human and financial management, etc. Identify the various dysfunctions and then design a restructuring plan. custom made. This will make it possible to identify the objectives targeted as well as the resources available to achieve them. Given the difficulty of taking a step back from the situation and the problems encountered, it can be very beneficial to call on an interim manager, an expert in corporate restructuring. At Wayden, our interim managers have more than 15 years of experience in this type of mission and are specialized in your sector of activity. They support you in your business restructuring, regardless of the extent of your financial difficulties.

Assessing the need for restructuring

The first step in business restructuring is to identify the need for change. This involves conducting a thorough assessment of the organization’s current state, identifying areas of inefficiency or underperformance, and determining the specific goals and objectives of the restructuring effort. This assessment helps in setting clear expectations and defining the scope of the restructuring process.

Developing a restructuring Plan

Once the need for restructuring is established, the next step is to develop a comprehensive restructuring plan. This plan outlines the specific actions, timelines, and resources required to achieve the desired outcomes. It may involve streamlining operations, reducing costs, realigning departments, or implementing new technologies. The plan should also consider the potential impact on employees, stakeholders, and the overall business ecosystem.

Types of Business Restructuring and Examples

Step 2: Announcement of corporate restructuring

This second stage of the business restructuring project consists in communicating this approach to the various actors of the company: managers, employees, as well as all external actors (customers, suppliers, carriers, service providers, partners, etc.). It is important to anticipate the emotional impact of the changes deployed. Indeed, a restructuring can lead to more or less radical decisions related to the turnaround plan: redundancy, relocation, job cuts, judicial liquidation, reclassification, sale, merger-acquisition, closure of subsidiaries or production sites, Job Safeguard Plan – PSE, conciliation procedure with your creditors, collective procedure such as receivership… These various transformations completely upset the daily life of the teams, hence the importance of supporting employees in this transition. To do this, share in complete transparency your action plan to restructure the company, the reasons for the destructuring, and insist on the long-term benefits. Be sure to build and convey a strong, clear and inspiring vision. Also anticipate the feelings that this announcement may cause: stress, disappointment, panic, disengagement, resistance… It is essential to give teams the opportunity to confidently express their fears and provide them with clear and reassuring answers. Finally, make sure with each of your managers that all employees have understood the ins and outs of this change and that they feel concerned and reassured. This step is decisive because the success of the restructuring of the company depends largely on the involvement of all employees.

Communicating and engaging stakeholders

Effective communication and stakeholder engagement are crucial during the restructuring process. Organizations need to clearly communicate the reasons behind the restructuring, the intended benefits, and the potential impact on employees and other stakeholders. Open and transparent communication fosters trust, minimizes resistance to change, and encourages active participation and collaboration from all parties involved.

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Step 3: The deconstruction phase of the old model

The deconstruction phase refers to the disintegration of the old organizational model of the company. All the old practices, ways of thinking and strategies that you have defined as irrelevant or obsolete must then disappear. Again, this step, which marks a real split, can be a great source of stress and loss of bearings. To appease the spirits and ensure its smooth running, it will therefore be necessary to support the teams very closely, on a daily basis.

Implementing the restructuring plan

With the restructuring plan in place and stakeholder buy-in secured, the next step is to implement the proposed changes. This may involve realigning reporting structures, redeploying resources, retraining employees, or implementing new technologies and processes. Effective project management and strong leadership are essential during this phase to ensure smooth execution and minimize disruptions to ongoing operations.

Step 4: The business rebuilding phase

The deconstruction phase follows the reconstruction phase of the company. This is when you will implement your new organizational model. It will be necessary to ensure that it is applied at all levels of the organization: management, reorganization of services, management mode, operational efficiency, etc. To ensure the proper implementation of your restructuring, carry out regular monitoring performance, and careful assessment of commitment and well-being of the teams. Support your employees in this change by helping everyone find their feet and adapt to the new ecosystem.

Monitoring and evaluating progress

Once the restructuring initiatives are implemented, it is crucial to monitor and evaluate their progress. This involves tracking key performance indicators, analyzing the impact of the changes, and making necessary adjustments along the way. Regular feedback loops and performance reviews help in identifying areas of improvement and ensuring that the restructuring efforts are aligned with the desired outcomes.

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Step 5: The integration and adjustment phase

The last step is the gradual integration of the new organizational model. It should be noted that restructuring operations must often be spread over a long period. They do not end at the precise moment when the new model is implemented, but must on the contrary be the subject of a long phase of integration and adjustment. During this period, it may therefore be necessary to deploy certain corrective actions if the results have not met the objectives.

An interim manager to steer its corporate restructuring

Like any deep transformation, corporate restructuring is delicate and complex, especially if it is implemented in times of crisis, and is often the subject of heavy and difficult decisions. However, the lack of discernment and the emotional involvement of the entrepreneur can represent a real obstacle to the deployment of his restructuring. The surest way to save your company and preserve its competitiveness on the market therefore remains to have recourse to the expertise of an interim manager, the only professional authorized to lead such an approach head-on within the most complex environments with companies in difficulty. Learn more about our corporate restructuring services.

Sustaining the restructured business

Business restructuring is not a one-time event but an ongoing process. To sustain the benefits achieved through restructuring, organizations need to foster a culture of continuous improvement and adaptability. This involves nurturing a learning environment, encouraging innovation, and regularly reassessing the business landscape to identify emerging opportunities and challenges.
Make calculation for business restructuration examples.

Read also: Strategies for Successfully Implementing Change | Navigating Change Management

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Business restructuring calculations

Here are a few examples of calculations that might be involved in a business restructuring process:

Cost Reduction Analysis:

• Calculate the current operating costs across different departments or business units.
• Analyze the potential cost savings from proposed changes, such as layoffs, facility consolidation, or outsourcing.
• Compare the projected savings with the associated costs of implementing the restructuring plan to assess its financial feasibility.

Financial Projections:

• Forecast the expected financial performance of the restructured business, considering factors like revenue growth, expense reduction, and capital investments.
• Estimate the impact of restructuring on key financial metrics, such as profitability, cash flow, and return on investment.
• Conduct sensitivity analysis to assess different scenarios and their potential financial outcomes.

Financial Ratios, Formulas, and Calculations for Informed Analysis

Valuation of Assets:

• Determine the fair value of assets that might be divested or sold during the restructuring process, such as real estate, equipment, or intellectual property.
• Consider factors like market conditions, depreciation, and potential synergies with strategic partners or buyers.
• Assess the financial implications of asset valuation on the overall restructuring plan, including potential gains or losses.

Debt Restructuring:

• Calculate the current outstanding debt obligations, including interest rates, repayment terms, and maturity dates.
• Explore options for debt restructuring, such as refinancing, debt consolidation, or negotiating new terms with lenders.
• Analyze the financial impact of different debt restructuring scenarios, including changes in interest expense, repayment schedules, and overall debt burden.

Return on Investment (ROI) Analysis:

• Assess the expected return on investment for proposed restructuring initiatives, such as new product development, market expansion, or technology upgrades.
• Calculate the projected revenue growth, cost savings, and capital investments associated with each initiative.
• Determine the payback period and ROI for each initiative to prioritize and allocate resources effectively.

It’s important to note that the specific calculations involved in business restructuring can vary significantly depending on the nature of the business, industry, and specific restructuring objectives. It is advisable to consult with financial experts, such as accountants or financial analysts, to ensure accurate and comprehensive calculations tailored to your specific situation.

In which cases can a corporate restructuring take place?

There is no exhaustive definition of the cases in which corporate restructuring may be considered, but some cases are explicitly provided for in the Labor Code or have been recognized by case law. They are:

• company merger: absorption of another company or creation of a new company resulting in the disappearance of a legal entity;
• transfer: partial or total sale of one company to another by buying back shares;
• the modification of important production structures;
• demerger: separation of subsidiaries of a group into an independent entity.

Corporate restructuring is also a means of adapting the company to changes in the world, and therefore can be decided following the emergence of constraints such as:

• the decline in the means of production;
• strategic reorientation;
• the relocation of certain activities;
• a health crisis.

The necessary conditions for the emergence of a corporate restructuring are therefore often the deterioration of the company’s performance indicators such as:

• loss of profitability;
• mismatch between market supply and demand;
• the drop in the level of cash or WCR (working capital requirement);
• tension in the management of human resources (turnover, sick leave, situations of tension between teams, etc.);
• the loss of confidence of the company’s partners (customers, suppliers, shareholders).

Conclusion

Business restructuring is a complex and transformative journey that requires careful planning, effective communication, and strong leadership. By following the key steps outlined in this article, organizations can navigate the restructuring process successfully and position themselves for long-term growth and success. It is important to approach restructuring as an opportunity for positive change and to engage employees and stakeholders actively throughout the process. With a strategic and well-executed restructuring plan, organizations can adapt to evolving market conditions, optimize their operations, and achieve sustainable success.

Sources: Lucidchart, CFO Hub, Harvard Business School

Photo credit: alisonupdyke via Pixabay

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