Business Services, Thought Leaders

How Does Corporate Restructuring Work?

November 30, 2021

by Sydney Wess

There are plenty of reasons a company may wish to change the way it operates, its overall structure, or even ownership. Corporate restructuring is the formal process of planning for and managing these changes. Companies considering restructuring should thoroughly research and seek assistance for this significant undertaking.

The world of business is always changing, and it's important for companies and corporate entities to be able to adapt and evolve with the times in order to stay ahead of the competition and continue to enjoy consistent levels of profits and success. 

Reshuffling and restructuring are therefore important processes for business owners and management teams to understand. This guide will take a look at the ins and outs of company restructuring, explaining what it is, how it works, and why it can be so important.

What Is Restructuring?

So, what do we mean when we talk about corporate restructuring or financial restructuring? Well, the process of restructuring is basically when companies take action to modify their financial and operational structures in large ways.

Often, a restructure is needed when the company is dealing with a large change in circumstances or sudden financial difficulties. The idea behind the restructure is to help the company adapt to suit the changing situation to cope with new financial pressures and survive difficult periods with minimal risk and harm.

There are many different ways in which restructuring can occur, depending on the nature of the business in question. Some restructures are focused on the financial side of the company, with efforts made to cut costs and reduce unnecessary expenditure. 

Meanwhile, other restructures will focus on staff and may involve layoffs and streamlining to improve efficiency. There are even some restructuring projects that look at the entire way in which the business operates and make major changes to transform the company's whole strategy.

Why and When Do Companies Need Corporate Restructuring?

There are many different reasons and situations in which a company may decide to restructure or even be forced into a restructuring. 

Often, restructuring is done in response to financial pressure. For example, if a company is looking at poor earnings reports, low levels of sales, high amounts of debt, or simply struggling to keep up with the competition, it may consider a restructure to address those concerns and improve its financial standing.

There are other situations in which corporate restructuring can be used, too. For example, a company might want to restructure ahead of a big event, like a sale, merger, or buyout.

Or restructuring might be desired if a company comes under new ownership or has a new leadership team, or in response to social or economic changes in the world at large.

How Restructuring Works

The actual process of corporate restructuring can vary greatly, depending on the nature and scale of the restructuring project.

A small business undergoing relatively minor debt restructuring, for example, will not experience the same changes and situations as a global enterprise adjusting its entire business strategy.

The process can involve vast changes to operations, processes, departments, and units throughout the business. It also involves a great deal of planning and preparation; the main aim of the restructure needs to be laid out and kept in mind throughout the entire project for the process to be successful.

Often, companies will seek out the help of specialist advisors in financial and legal fields in order to ensure that their restructuring plans are effective and efficient. Parts of the company may even be sold off and new leadership team members or even a new CEO may be needed to oversee the restructuring.

The whole process can be very long and often challenging, with many changes and a likelihood of cuts and layoffs, too. However, by the end of the process, if the plan has been successfully implemented, a restructure can save a business from bankruptcy and allow it to grow and prosper in the years ahead.

7 Types of Restructuring

There are various different types of corporate restructuring that a company may choose to pursue, depending on its existing structure, financial pressures, and future needs. Here are some examples of different types of restructuring:

  1. Legal
  2. Turnaround
  3. Financial
  4. Mergers and acquisitions 
  5. Cost restructuring 
  6. Divestment
  7. Spin-off

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1. Legal

A legal restructure is when companies reassess and alter legal aspects of the way they are operated, such as their ownership status. 

2. Turnaround

A turnaround restructure is one of the biggest types of restructuring projects, in which the entire operations, admin, and services of a company are restructured to improve performance. Wholesale changes may be made to the overall working strategy and workplace culture with a turnaround.

3. Financial

Financial restructuring is very common and is designed to adjust the company's capital restructure to modify existing debts and cope with financial pressures.

4. Merger/Acquisition

A merger or acquisition is when a company merges with another, acquires another, or comes under new ownership, with the two merging firms combining their operations, technologies, products, and services.

5. Cost Restructuring

Cost restructuring is when a company adapts (and often cuts) admin and operations costs in order to deal with decreases in profits or revenue.

6. Divestment

Divestment is when a corporate entity sells or closes down a unit or area of its operations that is seen to be problematic, unprofitable, or inefficient.

7. Spin-Off

A spin-off is when a business unit is restructured into its own separate company, often with the intent to sell off that particular part of the overall business for a high price.

Corporate Restructuring Can Be Necessary for Growth and Survival

Hopefully, this guide has given you a clear and concise outline of what restructuring is, how it works, and how it can help to save businesses in difficult situations.

Indeed, in many cases, a restructuring can be a necessary process to keep a business alive, while also putting it in the best possible position for future growth and development. 
 

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