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How to restructure a company to increase profits

However successful your business may be, markets change, and there could come a time when you need to consider your options. There are many ways to restructure your business, so how do you choose the path that’s right for you? Do you simply tweak your existing model, or move to an entirely different structure?  Will the costs of a restructure outweigh the potential benefits? How quickly can you reorganise, how long will it take, and what support will you need? To help you decide the route that’s best for you, we show you how to restructure a company to increase profits and ensure a prosperous future for your business.

How to restructure a company

Staying profitable is the objective of all successful entrepreneurs. And one of the biggest challenges in business today is recognising when the market is telling you to change and adapt. From time to time, all organisations need a good shake up to reduce what the Harvard Business Review calls ‘organisational cholesterol’ – the group-think, inertia and outdated or inefficient processes that hold back business growth – as well as to innovate and improve financial performance. 

With change happening faster and faster, these restructurings need to happen more frequently, whether they be minor reconfigurations or wholescale changes of strategic direction. Restructuring your business can be a lifesaver, enabling you to remove roadblocks to growth, increase revenues and profits, and even avoid running out of cash altogether.

There are as many options to restructure as there are ways of doing business, and this guide will show you how to restructure a company in a way that’s best for you and your stakeholders.

Identify issues with an analysis of the current market

When thinking about what kind of company restructure you need, there are two important factors:

  1. How fast-moving your sector is
  2. How quickly you need change to happen

Where your market is very dynamic, with lots of new entrants, you might be better to move quickly and make relatively minor changes to attract new business or move into new markets. The time you would need, say, to make an acquisition or replace your management team would be too slow to implement.

If your industry is facing major changes, minor reconfigurations may not be enough to save it. For example, smaller hotels are facing stiff competition from the likes of Airbnb, and a holistic change of approach is needed to address changing consumer tastes.

It’s vital that companies in this position scan the market and watch for changes so that they can react before drastic losses in income harm the underlying business, especially if the changes needed require large capital investment.

Factors like changes in business regulation can also have a major impact of business, and a strategic company restructuring plan can mean you are able to implement changes before they pass into law.

By taking an overview of the market, including changes in consumer behaviour, changes in legislation, new entrants that are taking market share or otherwise disrupting existing market patterns, you can be ahead of the curve in analysing how these will affect you, and how to restructure to respond.

Set clear business objectives

Once you have decided to reorganise, it’s important to set clear objectives so that you can be sure your goals are realised. If you’re facing insolvency, then clearly increased cash flow on a short time-scale will be your aim. However, if you’re endeavouring to increase revenues or profits, then attaching a specific and measurable KPI will help you stay motivated and track progress.

If your goal is to cut costs over time, then be sure to factor an appropriate time-lag into your budget so that you can keep the business ticking over. For example, if you’re selling business premises and rationalising, you’ll need sufficient funds to keep the location open until a buyer is found. Or if you’re streamlining processes, by introducing a new CRM system for example, you’ll need to budget time and finances for staff training and the disruption that comes with the introduction of new technology.

If you clearly define your objective from the start (a 20% reduction in costs, a 30% increase in productivity, a 40% uplift in revenues), and set aside a realistic budget for implementation, you’ll easily be able to track your progress towards your goal.

Evaluate sales against forecasts

If you’re planning a company restructure because you’re seeing a downturn of sales against your forecasts, then a strategic analysis is even more vital.  Look at trends in your sales volumes monthly, quarterly and annually, and take a hard looking at where costs seem to be increasing so that you can gain a ‘helicopter’ perspective of the issue.

What are the trends?

Take time out to look objectively at what’s happening in the market and review your offering against the changes taking place. Do you see this as a temporary blip, or is the decline steep or progressive?

Don’t be afraid to challenge the status quo and shake things up. If the ‘way you do things around here’ isn’t working anymore because customers expect faster delivery than your existing logistics network can manage, perhaps consider a radical shake-up, moving to a drop-ship model or using a third-party platform to generate sales, rather than marketing directly to consumers.

What are your bottlenecks?

In this respect, the 80/20 rule can be your friend. It’s often the case that 20% of customers generate 80% of sales, and that 20% of customers are the tricky clients that generate 80% of your sales team’s hassles, having an impact on productivity. Focussing on your pain-free buyers that don’t demand so much of your back-office staff can have a positive effect not only on morale, but on the bottom line.

What products or services just aren’t working?

Equally, it might be a good time to look at what you sell. Which products and services are popular, and which languish on the shelves? Which services are expensive to provide in terms of marketing effort and staff input, and which services are more cost-effective?

In terms of increasing sales, are there opportunities that you could reach for? By looking carefully at the market and your data, talking to your network and watching what competitors are offering, you could exploit an emerging market niche or devote more attention to a new line of products or services based on customer demand.

It could be your product simply needs a face-lift to stay competitive. Thinking back to Airbnb, perhaps your small hotel could re-market as a boutique offering, with pampering sessions and the personal touch that rentals can’t offer. Or a re-fit to provide clients with cooking facilities that replicate the flexibility and cost-effectiveness of a vacation rental.

In order to increase sales and reduce costs, you need to cut out less profitable products and services. Be prepared to invest your cash into capital spending and/or employee training into those areas that will pay and be prepared to leave the market altogether where your sales volumes indicate a substantial decrease in demand. 

Propose a new business strategy

Once you’ve focussed on the company restructure you’d like to make, it’s time to draw up a new business strategy. If you’re planning an overhaul of company procedures to increase turnaround times and sales or want to move to new software to cut costs, staff will need training, from the sales team to the back-office people. You’ll need to devote time and resources to properly brief and train your employees to ensure a smooth transition to the new way of doing things.

If your change involves commercial property, then good advisors are essential to help manage the sales or construction processes and keep the company operating normally while the necessary logistics take place. If you’re planning a company acquisition, then your legal, finance and HR team will need the capacity to absorb the distraction and time-consuming transition to a new company structure. If you plan redundancies, make sure you follow the proper legal processes and consult with staff, so you don’t get side-tracked by expensive and time-consuming legal disputes.

Restructure management – personnel analysis and recruitment/training needs

In any company restructure, taking a top-down approach can be tricky but is an important component. If you’ve concluded that staffing is a problem, then consider replacing poorly performing management and review the composition of your board of directors, including any non-executive directors.

A heavy layer of middle management can drag down profits, and an organisational restructure can address this. Be sure to take legal advice and work closely with your HR team throughout the process. Be aware that your company’s constitution may need changing as part of your restructuring programme.

Reviewing your salaries and incentive plans is an additional way not only to cut costs but improve productivity. Switching from bonuses and wage increases to share options or other employee incentive plans is a great way to conserve cash and motivate staff in the process.

If you’re planning to remove directors, then review their service agreements first to make sure you don’t fall foul of any procedure you’ve agreed, and to understand the financial consequences of the decision.

In terms of staff members, ask yourself whether your team is too large, and whether you’re getting the most out of them. While this can be a painful task, it can yield huge benefits in terms of profit – by re-training and putting staff into new roles that play to their strengths you can increase productivity and enable your people to grow alongside your business.

Equally, your business may have grown to the point that you need to consider new hires. Creating a role for a dedicated professional in IT, HR, or operations can improve the effectiveness of your staff who currently perform these duties alongside their existing roles.

Design a new organisational structure

Restructuring a business can sometimes seem intimidating but can be essential to grow and even survive. If you find yourself in this position, you may need to let go of your old assumptions and move to a new organisational structure to achieve the results you’re aiming for.

Here’s a snapshot of the most common changes to organisational structures that can yield improved results:

  • Changes to your business model. Sometimes the most effective changes come from rearranging your offering. Cross-selling complementary products or services can increase revenue, as can introducing discounts and special offers.
  • Consider moving to a subscription-based model. Pre-paid retainers or payment plans for your clients rather than unit pricing so that customers stay loyal to your business rather than your competitors.
  • Consider joint ventures or partnerships. This could boost the visibility and range of your business offering. Use social media and become an influencer in your field to improve your market position.
  • Improve staff performance. Introduce a customer relationship management (CRM) system so that all your back-office functions and client information is kept in one place. This will not only cut costs by enabling you to trim staff but will improve your relationships with customers.
  • Jump-start your marketing efforts. Ditch inefficient paper-based flyers and marketing materials and move online. Clients expect a presence on social media sites, and to be able to view products and service offerings on video clips, websites and podcasts. Be sure to measure the effects of your marketing so that you can focus on those that yield the best results.
  • Move staff to roles where they can shine. And remove poorly performing areas of the business. Ensure your team is properly trained and incentivise them to grow the business. A motivated, happy employee can be your best salesperson
  • Invest in software. Or other technologies that will streamline internal processes by using workflows to process sales and monitor projects more effectively.
  • Consider a merger or acquisition. This can be a good way to reorganise, as an alternative to moving into an unfamiliar area of business.

Is growth through acquisition an option?

When companies grow, they often look outside their own business to expand via an acquisition rather than scaling organically. If you are evaluating another company for acquisition as an option, you must make sure you have sufficient funding and that your investors are on board. Gaining new customers and product lines can be a good option for restructuring, but you need a solid base and stable business behind you for this option to succeed.

Acquisitions, while tempting, can be a short-term drag on productivity, so you’ll also need the internal capacity to deal with the stresses and strains involved in buying a new company. After the purchase, your new customers and staff will need to be integrated into your existing business, and this can be challenging. You’ll also need to adapt your back-office processes. And if the culture of the company you’re acquiring is not a great fit, you’ll need to invest time and effort to get all your staff on the same page.

If you’re planning to reorganise your business through acquisition, make sure you have a communications plan in place, so the people involved (your customer and staff) feel fully involved and informed at each stage of the process.

Cost cutting: Is remote working an option?

Commercial property is an expensive resource, and technology has made it easier than ever for staff to work flexibly. In addition, some parts of the country are more expensive than others in terms of leasing costs. Consider closing down some of your locations by selling property and moving employees to a remote-working option – this can improve staff morale and productivity as well as saving you money. Outsourcing certain functions is also a great way to eliminate the overhead of in-house teams.

How to update employees of a company restructure

When reorganising your business and restructuring, communication with employees is essential so they remain happy and motivated. Your staff will have many questions and concerns, and if you’re introducing new processes or technologies, good training will help ensure a smooth transition. Schedule regular meetings and staff briefings and consider a wiki page so that questions and comments can be dealt with quickly and efficiently.

How to restructure debt for companies

Restructuring debt can be essential to save a company. It can also be used to strengthen a business’s financial performance by reducing overheads and streamlining cash flows.

Start the process by looking at your corporate loans, and map out the rates and payment schedules for each of them. Take a birds-eye view of where you feel you’re paying too much, or where loan repayments are becoming a drag on cash flow.

The most common way to restructure debt is via a refinancing, where you use new debt to pay off existing loans or overdrafts. In a typical debt restructuring, you can alter the dates that principal payments become due, as well as changing the frequency of interest payments.

If you’re restructuring your business because cash flow is tight and you risk missing a payment, you’ll need to negotiate new terms with your lender. Banks and investors rarely want their borrowers to default because insolvency is such an expensive option, so they will want to cooperate with you to reschedule your debt.

Refinancing, where you move to a cheaper loan and use the proceeds to pay off an older, more expensive one, can be cheaper and faster than restructuring. You can consolidate your loans for greater simplicity, reduce interest rates and free up cash to grow your business.

Another option for larger companies is considering changing debt for equity. Investors often have a greater involvement with companies as they are shareholders alongside their role of providers as capital, and this input can be extremely useful.

Change management for organisational restructuring: What legal support will you need?

In any corporate restructuring, good legal advice is essential.

Use legal support to help you develop your restructuring plan and develop your communications messages alongside it. You can then be confident to share the plan with your board, investors and staff. You should also keep your bank and suppliers on board if the changes you envisage might impact them.

Here are the most common areas of legal expertise needed in a corporate restructuring:

  • Conveyancing legal advice if you plan to sell or acquire new premises
  • Corporate law specialists if you are planning an acquisition or need to make changes to your board of directors or investors. They can also help you introduce a staff incentive scheme
  • Banking solicitors if you will be restructuring or refinance your loans
  • Employment lawyers to help with staffing issues, including changes to the board
  • Other areas of legal support include commercial law advice if you are changing suppliers or introducing new technology such as a CRM platform to avoid time consuming disputes and ensure a smooth transition to the new model without burdensome contract terms.

Why corporate restructuring in strategic management is so important

Corporate restructuring is an essential tool in business. If used in the right way it can deliver value by increasing revenues and profits as well as reducing overheads.

However, like all tools, they need to be used in the right way to be effective. Constant tinkering with your model can be distracting for you and your staff and negatively impact on productivity. However, if your industry is fast-moving, change may be essential to stay ahead of the game.

Above all, using reorganisations in strategic management is a great way to keep your business fresh and stay ahead of the competition. Make sure your plan is evidence-based, laid out in a comprehensive restructuring plan and communicate it clearly to all your stakeholders throughout the process. With good advice and careful planning, you can ensure a smooth transition to your new operating model.


What next?

For more answers to commonly asked questions and company restructuring advice, consult our corporate and employment law solicitors. Get in touch on 0800 689 1700, email us at enquiries@hjsolicitors.co.uk, or fill out the short form below with your enquiry.

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