Business restructuring: What to consider

What is business restructuring?

Business restructuring fundamentally changes how a company is run, financed and managed to make it more efficient and profitable. The goal is to create a business that’s more robust and better equipped to navigate current and future challenges and meet the objectives of its directors and shareholders.

You cannot take a one-size-fits-all approach to business restructuring as every company and its challenges are unique. Every business restructuring plan should start with a thorough assessment of your company’s financial position and its operational threats and opportunities to get a clear picture of its position. You can then devise and implement an appropriate strategy, typically with the help of business restructuring experts. 

How to restructure a business

These are some of the most common business restructuring techniques, whether you want to navigate a crisis or enhance its strategic position.

Refinancing

Paying high interest on business borrowing erodes company cash flow and makes it difficult to grow. As part of your restructuring plan, you may need to question the financial sustainability of your current funding and explore new, cheaper ways to inject cash into the business.

For example, you may be able to secure a business loan against a company asset and use that to repay more expensive borrowing. Alternative funding methods such as invoice finance and merchant cash advances are also worth exploring. They can provide a sustainable source of finance that’s a good fit for your business model and grows in line with your company. 

Restructure your debts  

Constant creditor pressure and threats of legal action are a sure sign that you need to act. If you have outstanding debts with creditors such as HMRC, suppliers and banks, it may be possible to negotiate to spread your debt repayments over a longer period. That can safeguard the immediate future of your company and release the pressure on cash flow.

If you’re struggling with tax arrears, you may be able to make a Time to Pay arrangement with HMRC to pay what you owe over a typical period of three to six months. On the other hand, if you have multiple creditors you cannot pay, a formal insolvency procedure called a Company Voluntary Arrangement (CVA) enables you to repay your debts over three to five years while continuing to trade.   

Streamlining and cost-cutting

A common way to restructure a business is to simplify it by scaling down or stripping away its less profitable areas and returning to its core functions. Businesses often diversify into new areas as they grow, but those new areas may be less efficient and more competitive, and developing your market share can be resource-intensive.

Streamlining the business allows you to focus your funds and resources on the profitable areas it excels in. It also reduces costs, as you can cut back on spending, lower staff numbers if necessary and consolidate premises and facilities. That increases short-term profitability but can come at the cost of growth.   

Sell non-essential assets

Selling assets that are not essential to the operation of your business is one of the easiest ways to free up funds to repay creditors, increase cash flow and invest in growth. Examples of non-essential assets may include underutilised equipment and machinery, unused commercial units or office space, excess inventory and subsidiary businesses that are not aligned with the company’s core strategy.

Always get a professional valuation when selling non-essential assets to maximise your return.  Specialist business asset sales teams provide a full service, from valuation and marketing to the sale itself. They are used to working with specialist assets in diverse sectors and have databases of interested buyers. That can lead to a quick sale to address your short-term financial needs.

Administration and Pre-Pack Administration    

If your business has unmanageable debts, formal insolvency procedures such as Administration and Pre-Pack Administration could be an option. Administration protects the company from creditor legal action while a licensed Insolvency Practitioner puts a rescue and restructuring plan in place. That can include the sale of assets, cost-cutting measures, debt restructuring and redundancies. In Administration, the restructuring process usually takes place while the business continues to trade.

Pre-Pack Administration is a special Administration process where the sale of all or part of the business and its assets is pre-arranged. The sale takes place as soon as an Insolvency Practitioner is appointed to ensure the continuity of trade. The business’s assets may be bought by a competitor, an unconnected third party or even a director of the original company, and the money from the sale of assets is used to pay the old business’s debts.  

The business and asset sales experts

At Eddisons Asset Auctions, we work closely with business owners and Insolvency Practitioners to value, market and sell assets across diverse sectors. With more than 26,000 buyers in our network and 300 auctions every year, we can help you maximise your returns and generate the funds to restructure your business. Find out more about our asset valuation and asset sales services, and contact our team for a free appraisal.