Company directors are often faced with difficult decisions when their company is experiencing financial difficulties. In some cases, it may be necessary to restructure the company in order to turn around the business.
This can be a complex process, and there are a number of steps to be taken in order for it to be successful. In this blog post, we will discuss all of the steps involved in a commercial restructure, as well as the different options available to directors.
We will examine the possibility of a personal restructuring strategy being a necessity, possibly as a result of a corporate turnaround. We will identify steps to help turnaround personal financial difficulties.
What is a commercial restructure and why might it be necessary
A commercial restructure is a process used to turn around a company experiencing financial difficulties. It involves assessing and restructuring the company in order to make it more profitable and sustainable.
What are the triggers for a corporate restructuring?
There are a number of reasons why a commercial restructure might be necessary, including:
- The company is not generating enough revenue to cover its costs
Cash flow issues tend to indicate a business must take action or become insolvent.
- The company has high levels of debt
Again, the debt should be covered by revenue. Low income and high outgoings are a red flag for financial difficulties ahead.
- The company is not competitive in the market
Your market base has moved, or your competitors have new services or products causing your company’s sales to decrease.
- The company is not meeting its obligations to creditors or shareholders
If your company is facing any of these issues, it may be necessary to consider commercial restructuring strategies. Questions you should ask at this stage include:
- Can the business be saved?
- Do I want to expend the effort and funds required to save it?
- Can the business continue to be competitive and profitable?
The steps involved in a commercial restructure
The steps involved in a commercial restructure are as follows:
- Assess the company’s current position
The first step in a commercial restructure is to assess the company’s current position. This involves reviewing the company’s financial statements and organisation and processes to identify its strengths and weaknesses. This information provides a starting point from which we can develop a restructuring plan to address the company’s financial problems.
- Identify the causes of the financial, or other, difficulties
The second step is to identify the causes of the company’s difficulties. This involves analysing the company’s finances, organisation and performance and determining what led to its current situation.This causal analysis enables your financial team to resolve the problems as part of the restructuring plan. For example, if the company is not generating enough revenue, then measures can be put in place to increase sales. Areas of the company not performing as well as expected may be sold to provide funds.
- Develop a turnaround plan
Now the financial position has been assessed and the causes of its financial difficulties have been identified, it is time to develop a restructuring plan. This is a document outlining how the company will be restructured and how it will return to profitability. The restructuring plan should be realistic and achievable, and it should take into account both the company’s current situation and its future prospects.
- Negotiate with creditors and shareholders
The restructuring plan must be presented to creditors and shareholders for approval. This process may present a more favourable option than if the company was put into liquidation, offering creditors and shareholders less chance of losing their money. Everyone involved in a commercial restructure should be working towards achieving the same goal – turning around the company’s fortunes.
- Implement the turnaround plan
When company stakeholders have agreed to the restructuring plan, it is time to implement it. This involves putting into place all of the measures outlined in the plan. Your financial advisor will work with you, especially if there are any changes required to how the business is run. The plan may involve changes to business processes or personnel and training or guidance may be needed for staff.
- Monitor the progress of the turnaround plan
Finally, once the restructuring plan has been implemented, progress will be monitored.
The turnaround plan includes management accounts and reports and regular reviews and comparisons with expectations will help keep the business running successfully.
The different options available to directors
There are a number of different options available to directors who may be reluctant to restructure their company. These include:
- Selling the company
may be a good option if the company is showing signs of financial difficulties and the current directors have no desire to continue in business. The advantage of this option is it can provide a quick solution to the company’s problems. However, the disadvantage is the company stakeholders may receive less money than it is worth.
- Closing the company down, or liquidation
is another choice for directors may consider. This option is often used when there is no hope of turning the company around. Liquidation will ensure the directors are not guilty of illegal trading while insolvent but may mean creditors, including employees, will not receive all, or any, of their outstanding debt.
- Negotiating debt or refinancing
may help return the company to successful trading. This involves renegotiating the terms of the company’s debt with its creditors. Your financial advisor may be able to obtain funding. At Corporate Lifeline, we have a network of trusted lenders. Our financial consultants may present the forecast company performance after the proposed turnaround as a basis to obtain credit.
- Voluntary Administration
hands control of the company to an experienced, licenced administrator. The administrator’s aim is to recover the company to achieve the best financial outcome for company creditors. They will also investigate the causes of the company’s financial difficulties.
The three possible outcomes of voluntary administration are:
- 1. Return control of the company to the directors
The administrator has assessed the company and believes it can continue to trade successfully.
- 2. Liquidation
The business is deemed to be beyond saving. The company is placed in the hands of a liquidator, who will dispose of company assets to raise funds to cover outstanding debts.
- 3. A Deed of Company Arrangement (DOCA)
An agreement between creditors and the company to repay an agreed amount of the outstanding debt. The DOCA should call out the source of new funds and a schedule to repay the debts.
Each of these options has its own advantages and disadvantages. Your financial advisor will help you to weigh up all of the factors before making a decision.
What happens after the restructure is complete
The commercial restructuring process is completed once all of the steps have been completed. This may involve the sale of some or all of the company’s assets, and the proceeds from the sale will be used to repay the creditors. The turnaround strategy may have required some employees to be made redundant and others to work in new roles. Your financial consultants should help you during the transition\/initiation period.
Ongoing financial monitoring will be crucial. Corporate Lifelines business advisory team will remain with you to monitor and review management and financial reports to ensure the business is performing as planned.
What is a personal restructure and why is it required?
When an individual has money problems, they may need to consider a personal restructuring strategy. This is when they change the way they earn or spend money. Usually, this happens because something went wrong with their job or with the money they were making. They may have gone through a process to restructure or otherwise change the company or place of employment.
When you have personal cash flow difficulties, you may need to restructure your finances. Generally, you need to make more money or spend less money.
Making more money
- Get a better-paying job
look for other opportunities.
- Training or education
qualify for a better-paying position.
- Start an additional job.
Working an extra part-time job will help boost your income.
Spending less money
- Change your lifestyle
eat out less, end your gym membership
- Downsize your home
Lower rent or mortgage repayments will boost your personal cash flow situation
- Get rid of your car
Use public transport, or walk
- Cut back on your travel
Are those expensive trips necessary?
What is your best option?
Contact Corporate Lifeline!
Our restructuring consultants and business advisory team are sympathetic. We understand your situation and have experience in identifying solutions. We have saved hundreds of Australian companies from financial difficulties.
There may be options you aren’t aware of to save your business. Don’t delay, the situation is unlikely to improve without assistance.
Contact one of our professionals today.