23rd May 2021
Coronavirus (Covid-19) Corporate Restructuring Options
As we continue to be affected by the coronavirus pandemic, businesses up and down the country are eagerly awaiting restrictions on social movement to be lifted, allowing for trade to resume. When things return to ‘normal’, however, companies should be prepared for a new version of ‘normality’, one which may be far removed from what they are used to.
Just because the country is back open for business, does not things will revert to how they were previously, at least not immediately.
While some consumers will be eager to return to their old ways, others may be more hesitant when it comes to social situations and group gatherings. Some consumers will also have reduced spending power which will have huge implications for the cash flow of those companies who rely on discretionary spending and non-essential purchases.
Cash flow is the lifeblood of any small business, and once this becomes squeezed, the company can quickly find itself in financial distress. The good news is that there are steps which can be taken by directors and shareholders to enhance cash flow even in challenging times.
Improving cash flow can be done either by increasing the money coming into the business, or else by reducing outgoings. Maximising income can be done by increasing trade, obtaining finance, or chasing up outstanding invoices which have gone unpaid to bring more money into the business.
Many directors will need to consider how to restructure their company for business growth and survival during this time. Restructuring is a type of corporate advisory process which aims to improve the financial and operational efficiency of a company.
Restructuring involves changing the financial, operational, legal, or other structures of a business with the purpose of making it a more efficient as well as a more profitable organisation. In order to be effective, the restructuring process needs the input of a business turnaround expert working closely with the company’s management team and other key stakeholders to plot a way forward.
Corporate restructuring often takes place when a company is experiencing financial difficulty, or as part of a formal insolvency process such as company administration. If a company does enter administration it will be granted a moratorium which gives a company time, space, as well as legal protection while the company is restructured. If the company is not threatened with litigation or imminent insolvency, then the restructuring process can take place while the business continues to operate.
Restructuring, however, is not limited to distressed companies. Businesses often turn to restructuring when a need for change has been highlighted. While this could be down to financial reasons, it also includes macro and micro-economic factors which have the potential to change the way a company does businesses including political issues (such as Brexit), or global pandemics such as the recent Covid-19 coronavirus crisis.
Restructuring a company is the perfect opportunity to reflect not only on the current position of the business, but also taking steps to ensure it is appropriate for what the world may look like in the future.
There are huge benefits to restructuring a company and directors should not be afraid of the process. Just because things have always been done a certain way, does not mean that they need to continue to be done that way.
In a post-coronavirus world, things are not the same as the always have been, therefore it is important that your company is structured in a way which takes into account the changes to the economy and ensures it is suited to both its present and future needs.
Businesses need to adapt to the ‘new normal’ which may require strict social distancing measures as well as increased health and hygiene protocols. As well as dealing with changing consumer behaviour or sentiment, some companies will find the first few months of trade particularly difficult as, while trade may not bounce back immediately, costs will return with gusto.
Those companies which have been using the government’s subsidised furlough scheme to cover wages will be hit with the full wage bill for its employees once more, however, with cash flow having taken a hit due to months of no trade, this could be financially straining.
Companies must also take into account any emergency loans which have been taken out during this time, as well as any payments – such as rent or tax – which they previously deferred. This will increase outgoings thereby reducing available cash flow.
There are many different aspects to restructuring, and one of the most common types of restructuring is through a process of streamlining and business simplification. This involves identifying non-performing areas or departments of a company which can be closed or at least scaled down, allowing for funds as well as resources, to be channelled towards more profitable areas of the business. A slimmed down, more refined organisational structure allows for increased efficiency as well as potentially significant operating cost reductions.
After a company has been restructured, it should have increased resilience, setting it up well for the future. By taking into account potential threats, which may well be different to those risks identified when the business was first launched, ensures it is fit for purpose for the present time, while also improving stability and preserving stakeholder value.
Embarking on a process of restructuring can ensure your company is in an optimal position to hit the ground running when we emerge from the coronavirus pandemic. Real Business Rescue’s team of licensed insolvency practitioners and business turnaround experts can talk you through the entire restructuring process and be there to support your business every step of the way. To arrange an initial consultation with one of our restructuring specialists, call the team on 0800 644 6080 today.