Recognising when it’s time to restructure your business

With disruptive forces including emerging technology and competitive market conditions, organisations can find themselves in financial trouble very quickly, with many ending up in liquidation rather than returning to trading. However, if businesses act fast, they can avoid liquidation and, instead, restructure in a way that lets the business continue.

Here are the ten warning signs that can indicate it’s time for an organisation to restructure:

1. Poor competitiveness

Poor competitiveness is an opportunity for business leaders to examine all components of the business, including the business model and organisational structure, so the organisation can start overtaking rather than falling behind its competitors.

2. Growth is stagnating

For businesses failing to expand and scale, restructuring can help identify efficiencies. This may include leveraging resources such as a product, brand name or team members, so the business can scale up and become a dominant player.

3. Dramatic revenue drop

Poor financial metrics, including declining revenue, can be a key indicator that an organisation is no longer profitably structured. By restructuring, organisations can identify and address the causes of the revenue drop and, potentially, return to profitability.

4. Cashflow shortages

Poor cashflow can threaten solvency, affect credit ratings with suppliers, compromise competitive advantage, and drag down operations.

5. Lacking responsiveness

Poor decisions by management and ineffective internal communication can lead to slow or failed attempts at responsive action. Business leaders may recognise that there is a need for change, however, managers and employees lack the initiative to execute the large-scale changes required. This can set off a vicious cycle where high performers leave the organisation in frustration.

6. Runaway expenses

Businesses spending more than they make can be both cashflow-constrained and unprofitable. From there, it’s only a matter of time before these businesses are unable to pay their suppliers, creditors and other partners. Restructuring can identify an organisation’s unnecessary expenses and remove excessive costs.

7. Debt dependence

Organisations heavily dependent on debt are burdened by the servicing of their borrowings, restraining growth, cashflow, and the ability to invest in sources of competitive advantage. With a business restructure, leaders can formulate a new strategy to pay back the organisation’s debt while freeing up an appropriate amount of the profits to put back into growing the business.

8. Inefficiency

Inefficiency can be rooted in the businesses structure or the design of operations as well as in human resources and processes.Restructuring can also help business leaders identify processes to streamline operations while continuing to grow efficiently.

9. Shifting customer base

Whether an organisation’s customer base is diminishing, buying less, or looking for another product or service, a reduced customer base can be a key indicator that an organisation needs to be restructured. Restructuring may assist business leaders in finding ways to reduce the costs of production, introduce new product or services lines, or explore other revenue models.

10. Sales decline

A decline in sales volume, after accounting for seasonal and other expected variations, suggests an organisation may be at risk of insolvency. Business leaders must move quickly, seek advice, review operations and the market, and implement necessary changes to stay ahead of the market and consumer trends.

Keeping a watchful eye on the organisation lets business leaders act quickly when needed. With a business restructure, a business on the brink can have the chance to re-strategise and return to profitability, while identifying any financial weaknesses and implementing changes. Restructuring creates a new start, so business leaders need to make sure they have the right experts to help them along the way to make the most of this opportunity.

Domenic Calabretta, Managing Director, Mackay Goodwin