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How Do I Conduct a Financial Restructuring?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 01 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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Companies choose to undergo financial restructuring for a number of reasons. In some cases, the goal is to position the company for future growth by expansion into new markets or increasing its presence in current markets. At other times, the financial restructure is an effort to rearrange the finances of the business as a means of continuing to operate in spite of recent losses of clients and market share. Whatever the reasons for the restructure of business finances, there are a few essential matters to address in order for the effort to prove successful.

Before the actual financial restructuring begins, conducting a thorough analysis of the corporate finances is crucial. Doing so provides a complete picture of where the company is as of the current date, and serves as the basis for beginning to make changes that will ultimately benefit the business. As part of the analysis, every aspect of the business finances must be considered in turn. This includes assessing every form of revenue generation the company currently enjoys, the nature of every asset owned by the business, and all liabilities currently held by the company, including the schedules for payments to creditors.

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Once all aspects of the company’s finances are identified and understood, the task of financial restructuring can begin. One of the more common approaches is to immediately identify any strategies that would cut operational and other costs, and allow more of the company’s revenue streams to be diverted to maintaining the production process as well as settling older debt. Typically, this means looking closely at wages and salaries, as well as employee benefits. When and as possible, positions are eliminated and responsibilities allocated among the remaining employees. Depending on the size of the company, restructuring the employee force and reducing the amount of pay and benefits provided can mean freeing cash flow immediately for other purposes.

Another possible approach to financial restructuring involves changing the way that money is spent. For example, if the business model formerly allowed locations or departments a great deal of discretion in making purchases, centralizing this function through a central purchasing department can sometimes make it possible to negotiate lower prices for essential products and also increase accountability for expenditures.

It is not unusual for a financial restructuring to include relocating specific aspects of the production process, possibly by combining functions once handled in several different plants into a single plant location. While this may require expansion of that single location, this ultimately saves a great deal of money over operating several different facilities. As a bonus, those closed facilities can be sold off to fund the expansion of the combined facility and possibly generate cash to help alleviate some of the company’s debt.

While there is no one right strategy for conducting a financial restructuring, there are a few basics that will apply in any restructuring attempt. There must be a clear understanding of where the company is today, specific goals for the future must be articulated, and company officers and managers must communicate well with everyone involved. By keeping employees and stockholders informed of what is being changed and why, the financial restructuring is less likely to undermine confidence in the company. This often translates into key employees choosing to remain with the company during the restructuring, and shareholders willing to hang on to their stocks rather than dump them into the market, possibly causing the value of the shares to drop severely.

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