Those at the helm of a business should always be looking ahead and taking proactive measures to help future-proof the success of their organisations. 

As a leader, if you’ve carried out financial forecasting exercises and have concerns over the commercial viability of the business in the coming months or years, then now is likely to be an ideal time to consider undertaking an exercise to restructure or reorganise the business.

Restructuring does not have to be a significant exercise and it does not have to involve formal insolvency. Often there are relatively simple steps that can be taken to  support the goal of becoming more profitable and building longevity – but where do you start? Here, I share the five key areas to consider in the early stages of restructuring.

• Identify the cause of any financial issues or pressure

Identifying that things aren’t going to plan is one thing, but truly understanding the root cause of the issue is another – and until you know exactly what’s causing pressure, you can’t make an informed plan.

Is it a particular area of the business that’s underperforming, a major contract that isn’t profitable, or lease liability at a site that isn’t commercially viable? Perhaps a particular creditor is causing issues, or you’re stuck in the throes of litigation?

Asking questions like this should be the first stage in developing a restructuring strategy – it will not only identify current issues that need addressing now, but potential future headaches that could be avoided.

• Review banking arrangements and supply contracts

The next stage in the process is to audit your existing banking and financial arrangements and explore whether they can be altered to afford the business some financial breathing space. 

There are several options to consider, such as whether terms can be extended or renegotiated, or if a factoring or invoice discounting facility could assist with cashflow. Alongside banking arrangements, you should also review supplier contracts – can prices or payment terms be renegotiated to avoid operations grinding to a halt?

Although you may not want to make long term changes here, even temporary alterations in arrangements could help you navigate current business distress until you’re in a more stable position. 

• Consider the creditor position 

When a business is struggling with debt and cash flow is lacking, an option to consider before exploring external financing is looking to negotiate with your existing creditors. You can ask to lower your monthly payment amounts, extend payment terms, or seek to set up a longer term payment plan.

You’ll need to demonstrate that you’re able to keep up with the proposed new terms and be prepared for creditors to deny your request but, as they say, if you don’t ask, you don’t get!

• Review internal resource

As much as every business owner wants to avoid making staff cuts, it’s worth considering whether a redundancy process or reduction in staff numbers could assist – or whether hours or contracts could be reduced to save costs. 

The unfortunate reality is that, in some cases, reducing internal resource is unavoidable. However, if you’re considering making redundancies as part of restructuring plans, you must follow the usual process. Take professional advice to avoid unfair dismissal claims which could lead to even more stress and expense. 

• Reorganise group structure 

Simplifying the corporate structure of a group can also support in a business restructure. You should review whether contracts and liabilities are distributed effeiciently between parent companies or subsidiaries.

A reorganisation will often involve the transfer of assets, which may be shares in another group company or the business of another group company from one to another.

You could manage risk or exposure by moving liabilities around the group, or creating specific subsidiaries.

Restructuring can feel overwhelming but once you’ve identified issues, solutions may well present themselves. The best way to approach each stage should be discussed with a lawyer, but if solutions are not obvious or straightforward, you may need to consider a more formal process. 

Over the next blogs within this series, we’ll take a deep dive into the following options:

• Administration (including pre-pack sales)
• Company Voluntary Arrangement (CVAs)
• Other formal insolvency options.

If you need restructuring advice now, don’t hesitate to contact one of our experts. We’d be happy to help. Contact restructuring and insolvency partner, Daniel Clarke on  (0) 7920 237687 or email daniel.clarke@pannonecorporate-com.stackstaging.com