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5 pitfalls to avoid when restructuring your business

Almost every company, during its lifecycle, will need to adapt and restructure existing systems and processes in order to remain competitive in the ever-changing world of business. Those organisations that identify the need to make those changes quickly when the time comes are much more likely to continue successfully, compared with those that fail to acknowledge the emergence of such requirements.

However, restructuring a business is not easy, and many companies fail to grasp the process, which can lead to problems along the way. Every restructure is different, depending on the specific company and executive team. There are some universal mistakes that companies often make during this complicated process.

Here, we discuss some of the most common pitfalls faced by companies when it comes to business restructuring, and offer tips on how to avoid them.

Viewing restructuring as simple refinancing

Restructuring a company when it is struggling means introducing necessary changes that will make it profitable once again. A successful restructuring will generate enough free cash flow to remunerate shareholders following a period of loss. However, while any corporate restructure implies some financial changes, it is not only about refinancing.

Business leaders need to understand the underlying causes of their money issues in order to ensure a successful future. Restructuring comprises of the implementation of a number of improvements to the company, such as its asset management and capital structure, demonstrating that this process is so much more than altering debts.

Relying on intuition over insight

Business leaders, more often than not, rely on their intuition to make key decisions relating to the enterprise, something that often develops over the years of being at the heart of all operations. However, there are times when intuition is not enough, and restructuring is one of those times. If you have made the decision to restructure, it is essential that analysis is carried out in a timely manner to identify any ongoing problems, while fully understanding the root cause and evaluating the differences between potential solutions.

Failing to prepare for negotiations

All restructuring negotiations require preparation and strategy, and it is vital that managers do not walk blindly into negotiations. Initially, they need to think of any specific requests they want to make, as well as the guarantees they can offer, before negotiations with the bank even begin.

When carrying out important preparation, executives can propose and determine how the possible refinancing is going to be distributed, under what conditions and subject to what limits and guarantees.

Dismissing culture as unimportant

Very often, the culture of a business - such as the values and beliefs - is viewed as unimportant when compared with the strategies identified as part of the restructure. However, those in senior positions could be making a mistake by overlooking these important factors. The culture of a business, such as its accepted attitudes, norms of appropriate behaviour, relationships between the team and leadership style, as well as informal rewards and recognition play a significant role in shaping the business post-restructure.

Losing sight of the process

Although the legal, technical and financial complexities involved in a company restructure can be overwhelming, it is important not to lose sight of what the process is all about. Ensure you have a strategy in place that you can refer back to whenever you feel as if the process has veered off track.

Get in touch

Clough & Willis' team of corporate and commercial solicitors are best placed to offer advice relating to all aspects of a company restructure. Contact us today for advice by calling 0800 083 0815 or fill out an online enquiry form and we will get back to you at a time that is convenient for you.