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How does restructuring a business work?
Andy Beckingham, LC Bristol provides expert comment for South West Business Insider business restructuring feature.
What are the main challenges and benefits of restructuring a business?
Firstly dont bury your head and hope problems will go away. Ites very easy for a business owner to fall into the hoping for the best trap, but ites essential to take stock of where they are, whates happening in their market, bringing the senior team together to decide whates been learnt so far and how they must adapt. Acting quickly is important. By knowing what to look out for - and what steps to then take - a business has more time to react.
Dont be afraid of the insolvency process - rescue is always the priority. There is a misperception that asking an Insolvency Practitioner (IP) for guidance will automatically lead to the closure of the business. On the contrary, our priority - and that of all restructuring firms - is always to try to save it if possible. Where we are referred early enough, we can usually develop a practical strategy to put the company back on a steady footing.
Finding some more cash can sometimes be a key part of the solution but seldom in isolation. What we really want is sustainable change and this might be facilitated by the introduction of a business mentor with improved margins and robust cost control. The buying process and associated margin enhancement is too often overlooked and needs to be part of a holistic solution.
What are the trigger warnings for a business that a restructure might be imminent or a necessity?
Part of the reason we have this problem now is that it has been too easy to get cash in the last two years and businesses have spent it a bit too easily. So undoubtedly banks are more cautious now with lending and focusing on how they will get it back, and of course alarming stats about non-repayment of CBILs does not build confidence around fresh lending.
Just 18 months ago you could secure £50K in a matter of hours. There is a reason why you cant do that now. We are back to how we were pre-Covid, where you have to work a bit harder to get funding and be aware that if you cant pay a bill, or a supplier, or your staff, there are consequences. It was a bit too easy for too long.
Robust forecasts which identify and are flexed against downside risk are an essential element of the rescue toolkit. Constructive challenge and regular monitoring, whilst possibly painful at the time, are vital ingredients if nasty surprises are to be avoided. Cash may well be king but the unmanaged or unrecognised accrual of key liabilities like VAT and PAYE can result in a sudden loss of control if HMRC start recovery proceedings.
What steps does a company need to take in order to undertake a successful restructure?
Restructuring a business can give it a new lease of life - re-focussing on areas that deliver more sustainable returns.
To present a viable route forwards for a company and its finances, a full-scale restructuring plan should be created - including details of debt management and consolidation strategies. Bringing together and listening to - all relevant stakeholders is so valuable.
It is rarely the case that everyone will agree but identifying and addressing potential areas of tension or challenge at the start of the process can save a lot of trouble later and offers a fresh and constructive perspective throughout the process.
A great many regional businesses rely upon the skills of just one person or a very small board commonly there may be skills gaps which need to be identified and addressed.
What can they do strategically to protect themselves against some of the negative/downturn trends were seeing at the moment (i.e. move into new markets, such as the US; diversify; innovate services) and why might such moves be a good idea?
A great many businesses - which have ultimately failed - believed they would sell themselves out of trouble.
Expansion of geographic sales reach and product innovation may be a welcome and transformative part of a turnaround plan but these approaches will have to be costed and built into the overall plan. Enhanced profit potential is great but the increased working capital investment to get there will have to be planned and managed.
‚As noted above, the fundamental disciplines of cash and margin control, planning and review, and management competency analysis will need to remain the backbone of an overall solution.
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