4 cases when a business may benefit from restructuring
Colorado businesses that face upcoming transitions, profit loss, high turnover or inefficiency may benefit from some form of restructuring.
Business restructuring is a process that many business owners in Fort Collins may hesitate to take on. Changes to the organization, staffing or legal structure of a business can introduce uncertainty, result in asset loss and affect the business’s public image. Still, there are a number of common situations in which the benefits restructuring provides typically outweigh these potential concerns.
1. Loss of profitability
Reduced revenue is one of the top reasons that business owners should consider restructuring. A minor or short-term loss may not merit organizational changes. However, adjustments may be needed if a business experiences an extended break in an established pattern of profitability.
Several options are available to businesses that face profitability issues. Downsizing may curb revenue loss by eliminating unnecessary assets and operations. Financial restructuring may help address longer-term losses by changing a business’s debt, tax liability and operating costs.
2. Inefficiency or inadequacy
As a business expands, practices that were implemented when the business was founded or as it grew may become obsolete. For instance, the gradual addition of new leadership positions may result in excessive layers of management slowing down decision-making. Similarly, processes that worked for a small number of employees may prove cumbersome for a larger group.
Simple changes, such as the use of new software to streamline operations, may address some of these issues, but others may merit reorganization. Transfer of operations to other entities may improve efficiency and cost-effectiveness, as can purchasing a business that performs similar work to create a better economy of scale. Changes in organizational structure can also help remove outdated methods of operation.
3. Upcoming transitions
In some cases, restructuring may be used to facilitate upcoming business transactions by eliminating redundancies or accommodating the preferences of the other party. These transactions include:
- Mergers and acquisitions
- Sales or employee buyouts
- Transfer to an owner’s heirs
Changes within an industry or market may also necessitate business restructuring or reorganization. As examples, shifts in the economy, the technology that a company utilizes or the expectations of consumers may require a business to make changes to stay competitive.
4. Rising turnover
High levels of turnover, whether on the part of employees or clients, may also reveal issues that reorganization can address. For example, a reorganization that reduces operating costs may alleviate the financial concerns of clients. Careful restructuring of staffing and hierarchy may help improve employee morale in the long term.
Determining whether reorganization is the best option for a business and implementing the necessary changes is rarely a simple process. To expedite any necessary changes and minimize missteps, most business owners may benefit from consulting with an attorney who has experience in restructuring.