If ever there was a time for business restructuring, that time is now



Severely diminished cash flow for businesses will see widespread administrations and liquidations over the coming weeks. This should lead to considerably reduced competition in the post-covid marketplace. So, whether you’re looking to survive the turmoil or to position yourself to benefit from favourable conditions in the aftermath by making acquisitions of distressed companies, restructuring ought to be high on the agenda.

Companies will need to look at both surviving the here and now and future-proofing themselves. Those that don’t adapt to the new normal, or that don’t learn from the current situation will neither survive, nor thrive.

The first step in any restructuring is to seek the advice of a turnaround or restructuring specialist in order to gain an independent appraisal of your business, which is something you should not typically attempt to do internally. While you may think you can conduct an objective review of your business, self-diagnosis is a dangerous game and you may find yourself slipping back into patterns and strategies that have failed in the past.

Understand the situation:

A crucial step in your turnaround or restructuring, then, will be engaging a turnaround expert to conduct a clear-eyed, objective and thorough evaluation of your business from top to toe. They will look at everything from financials, to partners and clients, to competitors, to identify where your company needs to change and why.

Not only will a turnaround expert help you to identify problems that are impacting your business, they will also enable you to anticipate problems you may not otherwise have foreseen. This will allow you to react accordingly in your turnaround or restructuring efforts.

Hiring a professional to assess every element of your business will help you understand how best to restructure. It will guide you in deciding what changes you should consider making in order for the turnaround to be effective, how to implement those changes and what things are working well for your business and should be built on.

Undertaking a thorough evaluation in this way will help ensure that you don’t miss something that could derail your turnaround. Also, by costing everything identified as being in need of attention, you can gain a clearer picture of the financials behind your restructuring.

Plan your steps:

Once an evaluation of your business has been undertaken, you can begin to plan your restructuring/turnaround on a strategic and operational level. Whatever aspects of your business you are going to work on during your turnaround, it is important to develop detailed planning with your restructuring expert or advisor on how you are going to do this.

Consider the tactics that have or haven’t worked in the past and define how you intend to change things in the areas you’ve identified for your turnaround.

It will also be useful to plan how you will generate the capital for your turnaround, bearing in mind the costing from your business evaluation. You might consider asset sales, a capital raising, a cash injection from investors, or even a division sale or the acquisition of a profitable company that could have an instant positive impact on your cashflow.

Something that could be particularly helpful would be drawing up a cash flow map for you restructuring, in which you allocate resources across the areas in need of restructuring, while plotting the potential challenges and obstacles you might face.

Drawing something like this up will help you envision your restructuring, which, in turn, will help you enact it. A detailed, costed and balanced plan, meanwhile, will also help you sell your turnaround to potential investors, should you need to.

Raise capital:

Restructuring a business can be costly and, in periods of turnaround, you can see a real cash flow squeeze. In the current climate, that is likely to be felt particularly acutely. Before embarking on your restructuring, it is advisable to raise enough capital to see you through the process.

One option in this regard is outside capital. If you can prove a track record of success and a feasible turnaround plan, with full financial projections of course, to outside investors, then you may be able to attract loans, finance solutions and venture capital.

Or, you could seek to take advantage of the numerous loan schemes the government has unveiled in recent weeks to help businesses through the coronavirus crisis. The Coronavirus Business Interruption Loan Scheme (CBILS), for instance, provides government-backed loans of up to £5 million, with interest and fees covered by the government for the first year, to UK-based SMEs with turnover up to £45 million.

Another option to raise capital is to offset elements of your business. Selling assets such as property or equipment can be a useful way to get quick cash, particularly if you also have outstanding debts you want to resolve before restructuring.

Or, if your business is slightly bigger, then you could look to raise even greater sums by selling a non-essential unit or arm of your company. This will not only help raise capital, it will significantly reduce your costs while also enabling you to focus on your core business as you restructure.

Selling parts of your business has the added benefit of streamlining your company in preparation for a successful restructuring.

Redefine, reinvent:

Part of restructuring your company will be redefining what your company does and where it aims to be in future. Redefining your company’s mission statement can be an incredibly important step in a successful turnaround.

Whether adding new strings to your company’s bow through new products or acquisitions, or cutting away costly elements to re-focus on your core offering, making a restructuring work requires a clear idea of where you want your business to be further down the line.

Your business evaluation should make it easier for you to identify what elements of your company do or don’t work and, therefore, what needs cutting away and what needs focusing on.

Once you’ve done this and trimmed away any unwanted elements of your business, then you can focus on building those parts that you want to be central to your turnaround and the future of your business.

If this re-focusing involves acquisitions, then it’s important to bear in mind the lessons previous acquisitions may hold. If you’ve only just sold elements of your business that were unwieldy, then don’t rush into making acquisitions that are going to end up going the same way.

Also, while acquiring a distressed company may come with an attractive price tag at this time, be wary of taking on another turnaround if your main business is not financially robust. Or you may quickly find yourself stretched too thin, both in terms of workload and the financial burden/risk.

Redefining or refocusing your business also applies to your workplace culture. When restructuring, it will be vital to adopt a workplace culture that reflects this desire to change the business. Make sure you keep those important to your business, such as staff, clients and shareholders, up to date with developments and plans.

Despite making savings on overheads, a logistics business based in the south of England began to see heavy losses due to high-operating costs and fixed-price contracts. As its revenue fell below forecast, it incurred a fresh debt with HMRC, before entering administration with liabilities of £2 million.

Engaging with a restructuring specialist enabled the company to deal with its HMRC liability and TTP in default. This lead to more formal restructuring options within a limited timeframe. A Notice of Intention was filed by the advisers to protect the company while a Company Voluntary Agreement (CVA) was agreed upon with creditors.

The restructuring company also helped to resolve outstanding issues with the company’s Operator’s Licence. Specialists were then instructed to advise on asset values and evaluate the collectability of the firm’s sales ledger, before agreeing upon and implementing a strategy with the company’s bank.

Around six potential acquirers were then approached and a brief exclusivity period was entered into with a competitor business. The acquirer operated a niche UK logistics firm, which enabled the target company to discover synergies they could further leverage. All jobs within the company were saved upon the successful completion of the sale, and the lender extended facilities to the newly merged company.


Invest/Futureproof:

Fundamentally, a turnaround is a process through which you seek to better prepare you company for the future. And a crucial part of any forward-thinking business is fully utilising the power of digital.

Whether you produce content or cars, some form of digital investment will be crucial to the future success of your business. According to the Digital Marketing Institute, it is forecast that digital transformation spending will break $2 trillion globally this year. This reflects the sheer scale of the focus on digital, something that will only keep growing.

So, whether it's digital marketing, AI, cloud technology or digital manufacturing, there is bound to be some element of digital that is relevant to your business and the future of your sector.

Another trend that is only going to become more vital is sustainability. BlackRock CEO Larry Fink says that sustainable investment “will become a core component of how everybody invests in the future”.

Green investment is truly a win-win. For one, it will help you in winning the “hearts and minds” of customers and clients and proving your green, forward-thinking credentials. An example of this can be seen in Addison Lee’s 2015 acquisition of eco-friendly car service Climate Cars, at a time when it was looking to improve its damaged reputation on green issues.

Sustainability is more than just a PR game though, it’s a booming sector in its own right and one that keeps growing, from renewable energy to electric vehicles to sustainable packaging. More likely that not, there will be a sustainable investment out there that fits with your core business and could truly help you restructure towards the future.

What’s more, many companies in this sector are smaller startups. The kind of companies that are hungering for outside investment to help launch their bright idea and they can be prime targets for a successful, forward-thinking acquisition.

A business restructuring will never be an easy process, but the current climate is rife with challenges that require business owners to react. Beyond the implications of coronavirus, many of which are yet to be seen, there remains the issue of Brexit. As we mentioned at the outset, there has never been a more appropriate time to speak to a turnaround expert, to see what changes you could make to help your business thrive.

If you would like to be connected with a turnaround practitioner, we can help. Visit our website at BusinessTurnarounds.com.


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