Maximising Business Potential Through a Restructure
Need to improve your business performance? Restructuring might be the answer. This article explains what restructuring is, why it’s essential, and how it can benefit your company. Learn the steps of the restructuring process and get actionable insights.
Key Takeaways
- Restructuring is a strategic move to enhance business performance and may not always involve redundancies or high costs; it can benefit both stable and struggling businesses.
- Effective restructuring requires clear communication, stakeholder involvement, and careful planning to align with strategic goals and improve organisational efficiency.
- Blaze Business & Legal supports businesses in navigating restructuring by providing tailored strategies that merge legal guidance with business advisory to foster long-term growth and sustainability.
Understanding the Concept of Restructuring
Restructuring refers to changing the operational setup of an organisation to improve business performance. It’s a strategic move that can be necessary during periods of growth, development, or economic hardship. Contrary to popular belief, restructuring is not an admission of failure but rather a proactive business strategy aimed at positioning the company for future success.
Many people associate restructuring with financial distress, but that’s not always the case. Financially stable organisations can also benefit from restructuring to enhance productivity, streamline operations, and remain competitive. Restructuring is not a quick fix for financial issues; it requires careful planning and time to address root problems. Not all restructures lead to redundancies; some aim to enhance efficiency and productivity without significant job losses.
The belief that restructuring incurs unavoidable high costs is also misleading. With adequate planning, restructuring can be a beneficial investment that yields long-term gains. Furthermore, restructuring is not limited to large enterprises; small businesses can also employ it effectively to drive growth and adapt to changing market conditions. Many organisations can even maintain operations during restructuring, ensuring continuity while making necessary changes.
The Restructuring Process Unveiled
The restructuring process typically begins with identifying specific goals that will guide the overall strategy and objectives for the change. These goals can range from improving operational efficiency to adapting to new market conditions or addressing financial challenges.
Creating a comprehensive plan is essential to ensure that both technical and people aspects are considered. This includes designing new systems and addressing employee concerns.
Implementation of the restructuring changes is a critical phase that requires regular assessment of progress to ensure alignment with the main objectives. This phase involves rolling out the new structure and making necessary adjustments based on real-time feedback and performance metrics. Monitoring and evaluating the change process allows organisations to track progress, identify areas for improvement, and make data-driven decisions to optimise outcomes.
Clear and consistent communication with all stakeholders is crucial throughout the restructuring process to manage expectations, reduce resistance, and foster a sense of ownership among employees. Involving employees in the process and addressing their concerns helps organisations create a more supportive environment, facilitating smoother transitions and greater acceptance of the new structure.
Business Restructuring vs Small Business Restructure
Business Restructuring and the Small Business Restructuring (SBR) Process are both strategies for companies facing financial difficulties, but they differ in several key aspects:
Scope and Eligibility
Business Restructuring is a broad term that can apply to companies of any size. It involves making strategic changes to a company’s financial or operational setup to overcome challenges and ensure long-term viability[1].
In contrast, the Small Business Restructuring Process is a specific, formal insolvency process introduced by the Australian government on January 1, 2021, designed exclusively for small businesses[2][3]. To be eligible for SBR, a company must:
– Be incorporated under the Corporations Act
– Have total liabilities not exceeding $1 million (excluding employee entitlements)
– Be insolvent or likely to become insolvent
– Be up to date with tax lodgements and employee entitlements[1][3]
Control and Management
In a general Business Restructuring, the level of control retained by directors can vary depending on the specific approach taken. It may involve external consultants or administrators taking over management in some cases.
The SBR Process, however, is unique in that it’s the first insolvency framework in Australia that allows directors to retain control of their company throughout the entire process[2]. This “debtor-in-possession” model allows business owners to continue running day-to-day operations while restructuring their debts[1].
Process and Timeline
Business Restructuring can take various forms and timelines, depending on the company’s needs and the extent of changes required.
The SBR Process follows a more structured timeline:
1. Directors appoint a Small Business Restructuring Practitioner (SBRP)
2. The company has 20 business days (extendable by 10 days) to prepare a restructuring plan
3. Creditors have 15 business days to vote on the plan
4. If approved, the plan is implemented over a period not exceeding 3 years[1][4]
Creditor Involvement
In general Business Restructuring, creditor involvement can vary widely depending on the specific situation and strategies employed.
The SBR Process has a defined creditor involvement:
– Creditors vote on the restructuring plan
– The plan is accepted if more than 50% of creditors by value vote in favor (excluding related party creditors)
– If accepted, the plan becomes binding on all unsecured creditors[2][4]
Frequency of Use
There are no legal restrictions on how often a company can undergo general Business Restructuring.
However, the SBR Process can only be used once in a seven-year period, applying to both the company and its directors[8].
In conclusion, while Business Restructuring is a broad concept applicable to companies of all sizes, the Small Business Restructuring Process is a specific, streamlined insolvency framework designed to help small businesses restructure their debts while retaining control of their operations.
Citations:
[1] https://www.djra.com.au/faqs/whats-a-small-business-restructure/
[2] https://www.bdo.com.au/en-au/insights/business-restructuring/small-business-restructuring-an-attractive-option-for-directors-who-want-to-maintain-control
[3] https://treasury.gov.au/sites/default/files/2020-12/simplified-debt-restructuring-fact-sheet_0.pdf
[4] https://svpartners.com.au/services/solutions-for-businesses/small-business-restructure-process/
[5] https://asic.gov.au/regulatory-resources/insolvency/insolvency-for-directors/restructuring-and-the-restructuring-plan/
[6] https://treasury.gov.au/sites/default/files/2021-04/simplified_debt_restructuring_v2.pdf
[7] https://www.ato.gov.au/businesses-and-organisations/corporate-tax-measures-and-assurance/privately-owned-and-wealthy-groups/tax-governance/tax-governance-guide-for-privately-owned-groups/business-expansion/business-restructuring
[8] https://knowledge.worrells.net.au/knowledge/small-business-restructuring
How Blaze Business & Legal Helps Your Business to Restructure
Blaze Business & Legal merges business advisory and legal expertise to provide tailored solutions for restructuring. Their comprehensive approach combines business advisory, management consulting, and legal expertise to support businesses throughout the restructuring process. Identifying and resolving potential risks, Blaze helps protect businesses from costly disruptions and ensures a smoother transition to the new structure.
The firm emphasises building resilience and long-term success through actionable strategies tailored to each company’s needs. Blaze facilitates efficient decision-making by providing strategic management support, positioning businesses for success in their restructured state.
With Blaze’s expert guidance, businesses can navigate the complexities of restructuring with confidence, knowing they have a partner dedicated to their growth and sustainability.
Strategic Planning for Organisational Change
Identifying key stakeholders is crucial for understanding how organisational changes will affect employees, customers, and other parties involved. A comprehensive communication plan ensures that all stakeholders are informed throughout the restructuring process, which helps manage expectations and reduce resistance.
Developing training programs for employees is also vital for clarifying new roles and responsibilities in the restructured organisation. After restructuring, it’s important to focus on upskilling and re-engaging the workforce to counter low morale. Adopting a growth mindset encourages viewing restructuring as a chance for personal and professional development, seeing challenges as essential for growth.
Embracing change during restructuring can reveal new strengths and capabilities, turning challenges into opportunities for career progression. Collaboration and a focus on solutions instead of blame help foster innovation and forward momentum during restructuring.
Blaze Business & Legal assists in developing clear strategic plans that align with business goals, ensuring a focused direction for organisations.
Financial Analysis and Planning
Analytics is essential for assessing financial health by examining debt ratios, cash flow trends, and profitability metrics. Advanced analytics can identify cost-saving opportunities by revealing inefficiencies in operations and resource allocation. Predictive models using analytics help forecast the effects of restructuring decisions, such as debt restructuring or acquisitions. Risk assessment through analytics allows companies to spot potential market and credit risks related to new funding sources.
While restructuring charges can temporarily lower a company’s operating income, they are intended to generate cost savings that enhance profitability in the future. Blaze Business & Legal identifies areas of waste or inefficiency within operations and recommends practical changes to enhance productivity and reduce costs.
Their financial analysis and planning services help businesses optimise resource allocation, reduce costs, and improve financial performance.
Developing the Ideal New Structure for the Business
Evaluating the current organisational model is the first step in developing a new structure for the business. This assessment ensures that the restructuring aligns with strategic goals and addresses existing inefficiencies. Establishing key principles for changes helps guide the restructuring process and ensures that modifications enhance overall business operations.
Organising teams by function rather than by domain allows for optimisation towards specific outcomes, improving efficiency. Documenting the current operating model is crucial for understanding how changes will impact various functions within the organisation. Designing the new structure and placing team members into it should be based on their skills and the needs of the organisation to achieve set objectives.
Preparedness for adjustments post-implementation is important, as initial setups may require reevaluation and fine-tuning. By focusing on these key areas, businesses can develop an ideal new structure that supports their long-term goals and enhances overall performance.
Financial Implications of a Restructure
Restructuring often leads to significant changes in a company’s financial structure, particularly when addressing debt management. Companies may incur substantial costs during restructuring, such as those related to closing facilities or relocating employees. These costs are necessary to achieve long-term benefits, such as improved operational efficiency and profitability.
Debt restructuring can involve altering payment terms to ease financial burdens, which may include consolidating loans. While engaging in restructuring frequently results in redundancies, businesses aim to improve efficiency by downsizing.
Understanding these financial implications allows businesses to make informed decisions and strategically plan for the future.
How a Restructure Can Help Your Business Survive
Restructuring can enable businesses facing financial challenges to regain profitability by adjusting costs and improving cash flow. Companies often restructure to adapt to market shifts and remain competitive, especially in response to emerging technologies or regulatory changes.
Mergers and acquisitions typically necessitate restructuring to integrate operations and eliminate redundancy for enhanced efficiency. Strategic realignment through restructuring can support growth by allowing companies to respond to evolving customer demands and technological advancements.
Effective restructuring can lead to improved employee performance by enhancing workplace environments and fostering a stronger company culture. These real-world examples illustrate the potential benefits of restructuring and provide valuable insights for businesses facing similar challenges.
Why You Will Need A Skilled Management Consultant
Engaging a skilled Management Consultant for a business restructure is highly important and can significantly impact the success of the restructuring process. A skilled Business Restructuring Consultant brings several crucial benefits to the table:
- Expertise and Experience: Consultants possess extensive knowledge of accounting, financial modeling, and restructuring strategies. They have the ability to analyze complex financial data, devise actionable plans, and navigate negotiations with lenders and creditors.
- Fresh Perspective: Consultants offer an unbiased, external viewpoint that can lead to innovative solutions and improved decision-making. This objective expertise is particularly valuable when internal stakeholders might be too close to the situation to see all options clearly.
- Comprehensive Analysis: A skilled consultant conducts a thorough review of the business, evaluating financial performance, organizational structure, operational processes, and market positioning. This comprehensive approach helps identify inefficiencies, potential risks, and missed opportunities.
- Tailored Solutions: Consultants develop strategies specifically tailored to a company’s unique challenges and goals. They can address various aspects of restructuring, including financial recovery, operational efficiency, and adaptation to market changes.
- Implementation Support: Beyond strategy development, consultants assist in putting plans into action. They help with implementing new processes, negotiating with creditors, and monitoring progress to ensure desired results are achieved.
- Long-term Sustainability: Skilled consultants focus not just on immediate issues but also on fostering a culture of continuous improvement and sustainable strategies. This approach helps position the company for long-term success in a dynamic business landscape.
- Risk Mitigation: With their experience and expertise, consultants can help identify and mitigate potential risks associated with the restructuring process, potentially saving the company from costly mistakes.
- Efficiency and Time-Saving: Consultants can streamline the restructuring process, leveraging their experience to implement changes more quickly and effectively than might be possible with internal resources alone.
While it is possible to attempt a business restructure internally, the complexity and high stakes involved make engaging a skilled consultant a prudent investment. Their expertise, objectivity, and comprehensive approach can significantly increase the chances of a successful restructure, potentially saving the company time, money, and resources in the long run.
Managing Employee Transitions
Change management is essential during restructuring to mitigate employee resistance, enhance communication, and maintain productivity during the transition. Effective change management strategies also facilitate cultural transformation, ensuring that organisational values align with new working methods post-restructure.
Communication is essential during organisational change, facilitating clarity and understanding among employees. Open-door policies and increased contact between managers and employees should be promoted to help during a restructure.
Development plans for remaining employees can help keep morale high during difficult changes. Leaders should recognise the emotional impact of restructuring on employees and provide resources like counselling and career coaching.
Maintaining team stability and providing challenging work can stimulate creativity among remaining employees. Creating a supportive and positive environment during restructuring can enhance resilience and encourage a more optimistic outlook.
Utilising outplacement services can provide necessary support to both departing and remaining employees during transitions. Recognition and rewards for high performers can help remaining employees feel valued after a restructure.
Leadership Development During Restructuring
Leadership plays a vital role in guiding teams through the uncertainties of restructuring, helping inspire confidence and resilience among employees. A strong support structure from leaders can facilitate employee adaptation to new roles and responsibilities during a restructure.
Effective leaders encourage employees to pursue training and development to better prepare for changes in their positions. Blaze Business & Legal offers leadership development programs to help business owners and managers enhance their skills, inspire their teams, and drive results.
By investing in leadership development, organisations can ensure that their leaders are equipped to navigate the complexities of restructuring and support their teams through the transition.
Real-World Examples of Successful Restructures
Australia has seen several successful business restructures in recent years, demonstrating the effectiveness of various turnaround strategies. Here are some notable examples:
Large-Scale Corporate Turnarounds
Qantas Airways
Qantas, Australia’s flagship carrier, executed a remarkable turnaround. After posting a $2.8 billion loss in 2014, the airline implemented a comprehensive restructuring program. By 2016, Qantas reported a full-year underlying profit of $1.53 billion1. This success was attributed to smart internal measures, such as reconfiguring A330 planes for wider use, and external factors like favorable oil prices and currency exchange rates.
Billabong
The surfwear company Billabong faced significant financial difficulties, posting an $860 million loss in 2012. However, through a seven-year turnaround strategy, Billabong began to see positive results. By 2015, the company returned to profitability, albeit with a modest $4.2 million profit1.
Myer
Department store chain Myer successfully restructured by refocusing its core offerings. The company promoted popular labels like Topshop and Industrie while discontinuing over 100 other brands. This strategy led to a doubling of Myer’s full-year profits to approximately $60.5 million1.
Small Business Restructuring Success Stories
Manufacturing and Customer Company Group
Two interconnected companies within a corporate group utilized the Small Business Restructuring (SBR) process to address mounting debts with the Australian Taxation Office and trade suppliers. Through active involvement of directors and accountants, they formulated a plan that provided returns of 26 and 27 cents in the dollar to creditors, respectively. Both companies returned to solvency within two months of starting the SBR process7.
Construction Company
A construction company facing financial distress due to COVID-19 impacts and a significant bad debt of $600,000 entered the SBR process. With proactive involvement from directors and accountants, the company negotiated with creditors, particularly the ATO. Within six months, the company completed its restructuring plan, providing creditors with a final distribution of just under 30 cents in the dollar. The company regained solvency and continues to operate successfully7.
These examples highlight the effectiveness of Australia’s restructuring mechanisms, including the recently introduced Small Business Restructuring process, in helping businesses of various sizes navigate financial difficulties and return to profitability.
Learning from role models who have successfully navigated restructuring can provide inspiration and practical wisdom for overcoming challenges. Understanding successful restructuring can provide valuable insights for organisations facing similar challenges. By examining these real-world examples, businesses can gain a better understanding of the potential benefits and strategies for successful restructuring.
Citations
[1] https://www.cactusconsulting.com.au/debt-advice-blog/corporate-finance-insights-and-updates/3-failing-australian-businesses-that-successfully-turned-it-around/
[2] https://www.herbertsmithfreehills.com/insights/2020-12/australian-restructuring-legislation-transactions-and-cases
[3] https://businesssavers.com.au/resources/examples-of-company-restructuring/
[4] https://www.financierworldwide.com/restructuring-and-insolvency-developments-in-australias-commodity-and-mining-sectors
[5] https://sklaw.au/blog/how-successful-has-sbrp-been-so-far/
[6] https://blackwall.legal/2024/09/06/restructuring-reform-on-the-agenda-in-australia/
[7] https://worrells.net.au/resources/news/successful-small-business-restructuring
[8] https://expert360.com/articles/process-of-organisational-restructuring
[9] https://boettcherlaw.com.au/insolvency-restructuring-law/restructuring-success-stories/
Costs and Financial Implications
A restructuring charge represents a one-time cost incurred by a company during its reorganisation efforts. These charges typically appear as nonrecurring expenses on the income statement, impacting net income but often not significantly affecting shareholder interests.
The size of a restructuring charge varies based on the nature of the expenses involved, with some companies announcing substantial charges in response to significant operational changes.
While these costs can be substantial, they are necessary investments for achieving long-term benefits such as improved operational efficiency and profitability. By understanding the financial implications of restructuring, companies can make informed decisions and strategically plan for the future, ensuring that the short-term costs are outweighed by long-term gains.
How Restructuring Affects Jobs and Roles
Restructuring is often equated with redundancies, leading to negative associations with mass layoffs and change. However, it’s important to understand that not all restructures result in job losses. The goal is often to enhance productivity and efficiency, which can sometimes be achieved without significant redundancies.
Before making a role redundant, all reasonable alternatives should be explored to ensure fairness and transparency. Survivors of a restructure may leave the organisation if they feel undervalued or insecure about their future.
A 1% workforce reduction can cause a 31% increase in turnover, highlighting the importance of maintaining employee morale and engagement during and after the restructuring process. Team-building workshops and career resilience sessions can help employees cope with the changes and adapt to their new roles.
Recognising and rewarding high performers can also help remaining employees feel valued and motivated. Failures during restructuring can be reframed as valuable feedback for future success, emphasising a growth mindset.
Building Trust Through Transparency
Trust and transparency are critical for cultivating a positive workplace culture, especially during restructuring. Effective leaders promote a culture of trust by modelling ethical behaviour and maintaining open communication. Transparent communication helps to align employees with organisational goals, fostering a shared sense of purpose and reducing resistance to change.
A culture that prioritises transparency leads to increased employee engagement, as individuals feel valued and informed. Leaders should plan how to announce changes and support affected employees to maintain trust.
Clear communication regarding the purpose and outcomes of the restructuring is vital to mitigate confusion and resistance among employees. By being transparent, early, and supportive, leaders can help employees understand the reasons for restructuring and foster trust.
Reframing Restructure Positively
Reframing restructuring positively involves presenting it as an opportunity for growth and improvement. Recognising and celebrating small victories during the restructuring process helps sustain motivation and reinforces progress. By maintaining a positive mindset, organisations can encourage employee engagement and foster a culture of continuous improvement.
Encouraging employees to embrace restructuring as a necessary step towards enhanced performance and better outcomes for the organisation is crucial. Highlighting the benefits of the new structure and new roles can help employees see the restructuring process as a different way to achieve success and adapt to new ways of working.
By focusing on the positive aspects of restructuring, organisations can create a more optimistic and resilient workforce.
Conclusion
Restructuring is a powerful tool for businesses looking to improve performance, adapt to market changes, and achieve long-term success. By understanding the concept of restructuring, following a strategic planning process, and considering the financial and operational implications, companies can navigate this complex process with confidence.
Blaze Business & Legal provides comprehensive support to help businesses develop clear strategic plans, optimise financial performance, and manage organisational change effectively.
FAQs About Restructuring
1. Does restructuring always entail redundancies?
Restructuring doesn’t always entail redundancies. It may involve modifying roles or creating new ones to improve business operations. The goal is often to enhance productivity and efficiency, which can sometimes be achieved without job losses.
2. What legal considerations should employers be aware of during restructuring?
Employers must promptly inform employees about restructuring plans and implications. They should consider redeployment options before redundancies and document the selection process to ensure transparency.
3. How should employers handle employee feedback during restructuring?
Employee feedback should be taken seriously during restructuring. Open communication channels like open-door policies and regular manager-employee contact help address concerns.
4. What support can be provided to employees during restructuring?
Support resources like counselling, career coaching, and outplacement services can assist employees in navigating the emotional challenges of restructuring. Development plans for remaining employees can also boost morale.
5. How can businesses maintain trust and transparency during restructuring?
Transparency is key during restructuring. Leaders should provide clear and consistent communication about plans, addressing employee concerns openly to foster trust and engagement.
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