Restructuring is a type of corporate action taken when significantly modifying the debt, operations or structure of a company as a means of potentially eliminating financial harm and improving the business. When a company is having trouble making payments on its debt, it will often consolidate and adjust the terms of the debt in a debt restructuring, creating a way to pay off bond holders. A company restructures its operations or structure by cutting costs, such as payroll, or reducing its size through the sale of assets.
A company may restructure as a means of preparing for a sale, buyout, merger, change in overall goals or transfer to a relative. Perhaps the business has a failed product or service and does not bring in enough revenue for covering payroll and debts. As a result, depending on agreement by shareholders and creditors, the company may sell its assets, restructure its financial arrangements, issue equity for reducing debt, or file for bankruptcy as the business maintains operations.
If a company may planning to restructure may opt for any following procedure:
It can consider hiring a turnaround specialist as either an interim manager or a consultant to help with restructuring. An outsider often brings objectivity and a fresh point of view.
Analyze the extent of the problems. Is the profit picture merely ailing or is it terminally ill? Is the company's core business still financially viable?
Develop a restructuring plan and present it to the board of directors, management and employees. It may also be advisable to show the plan to certain outsiders, such as bankers and other creditors, and to major vendors.
Start at the top. Replace weak members of top management and the board of directors. Then reduce management layers. Unprofitable companies are often bloated with middle managers.
Investigate the possibility of restructuring debts or acquiring bridge loans to finance the restructuring costs.
Identify the most profitable customers. These aren't necessarily the biggest accounts. Concentrate on buyers who make few demands on the customer-service department, rarely return products and require only minimal marketing attention to prompt repeat orders.
Prune less-profitable product lines and increase financial and employee investment in more-profitable areas. Withdraw completely from unprofitable markets.
Close some facilities to reduce overhead. Consolidate divisions to eliminate duplicate administrative functions, and/or sell off underperforming divisions of the company.
Lay off employees or reduce some jobs from full to part time. Although this is one of management's most painful tasks, it's often essential for improving the profit picture.
Outsource costly services. Paying a flat fee to have selected services performed may reduce expenditures associated with in-house employees.
Move part--or all--of the company to another state (or country) to obtain lower employee wages, reduced power rates and/or special tax incentives.
Form a partnership with another company to share administrative services or technical expertise.
Investigate the latest technology for streamlining operations and/or improving products. Auto response voice-mail programs can handle phone inquiries. Robotic production components are becoming increasingly sophisticated and cost-effective.
Schedule personnel meetings to deal with the questions and concerns of remaining employees. After restructuring, the company's management will need to explain new procedures and financial projections.
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