Why Your CFO Should Be the Central Role in Your Business’s Restructuring

Business restructuring is the process of transforming a business into a better, more efficient version. Restructuring can take several forms. When the need for restructuring is caught early, it can be implemented into the day-to-day operational changes a business makes to stay relevant. Too often though, business leaders are too slow to respond and the business can no longer function and remain financially sound. In these severe cases, this may involve changing:

  • The business model
  • The current organizational structure of the organization
  • The operating divisions of the organization
  • How the business allocates its spending
  • Its balance sheet to restructure liabilities

Since business restructurings rely so heavily on an organization’s financial and operational reports, working with a Chief Financial Officer (CFO) is essential in the planning and execution phases of your restructuring. CFOs aren’t just bookkeepers—they are strategic partners who can provide insights about how to avoid risks associated with the reorganization. They’ll also help you identify how you can financially sustain your business through the change.

What CEOs Should Expect From Their CFO When A Business Restructure Is Necessary

A CFO makes business restructuring significantly easier. In fact, business restructuring is nearly impossible without one. Here are some advantages of having a CFO on your team during a restructuring:

Faster Identification of Inefficiencies

Businesses that need restructuring are typically in a state of financial decline. Some are at risk of missing financial obligations to creditors. CFOs that are actively forecasting cash and financial performance are able to see risks to the business far ahead of time and can anticipate how to address them before they become crises.

Professional CFOs can benchmark their business against other businesses to identify inefficiencies relative to their peers. A CFO can run what-if scenarios to help model intended outcomes as inefficiencies are removed from the business. When a chosen course of action is agreed to, the CFO can create a financial budget the company will manage against. A quality CFO should be at the center of a financial restructuring to anticipate signs of distress and locate inefficiencies.

Clearer Communication Throughout a Business

In addition to quickly identifying needs for restructuring, a CFO can also clearly communicate the need for restructuring throughout a business. For example, some departments may remain relatively unaffected by restructuring and may feel that restructuring isn’t that important.

Your CFO can talk with similar departments to clarify exactly why the business is going through a restructuring phase and how it will impact the business at large.

Better Remediation Plan

After finding those inefficiencies, your CFO can help you identify the right path to take to remediate them. This may involve creating new forms of cash flow, identifying necessary budget cuts, and offering plans to eliminate inefficiencies.

Smaller Financial Commitment (with an Outsourced CFO)

You may be thinking, “If I have to cut costs, how would hiring a CFO be any help? Isn’t that an additional cost?” That’s why hiring an outsourced CFO can be so beneficial.

An outsourced, part-time CFO will only work when you need them to, meaning you can learn how to be efficient with your cash flow without forking over a significant portion of it toward a new member of the executive team.

Better Measurements of Restructuring Success

Once a company implements its restructuring plan, a CFO is best equipped to measure the success of that plan. This means they can better cut through the noise of other metrics that may not be as meaningful and give context to other metrics.

For example, a revenue increase of $200,000 after restructuring could be seen as a surefire sign that the restructuring was successful. But what if the market grew at the same exact rate? Or what if expenses increased at a faster pace than revenues? A CFO is attuned to analyze these impacts to ensure the restructuring is working.

Your CFO will know which success metrics to track and will give detailed reports that clearly highlight improvements that can be attributed to your restructuring.

Why Do Businesses Restructure?

Businesses usually restructure as a response to financial threats and/or opportunities. This typically comes after the business’ decision-makers notice an inefficiency in their current operations or see a chance to increase their output.

At this point, a CFO will take a critical look at the business’ financials, warts, and all, and determine what needs to change.

Your business may recognize systemic issues in your business model that contribute to the lack of results experienced thus far. As such, restructuring may offer an advantage and make your business genuinely competitive. Businesses may also consider restructuring after they notice their competitors consistently outperforming them in growth and market share.

Key Takeaways:

  • Businesses restructure as a response to a financial crisis.
  • Company restructuring is a way to survive and regain a competitive advantage.

How Does It Impact Businesses?

There is much to gain from restructuring a business. The process can offer many benefits when done correctly, including:

  • Enhancing communication within your organization
  • Providing opportunities for future growth
  • Increasing productivity
  • Reducing inefficiencies
  • Decreasing operational costs
  • Restructuring the balance sheet
  • Ridding the organization of deadwood, which may include people, non-productive assets, dormant inventory, etc.

You must restructure very carefully—making hasty decisions may cause the restructuring to do more harm than good. If you cut your workforce and let go of some of your more experienced employees, that may decrease productivity. This may also reduce employee morale, leading to high attrition rates.

CFOs help in these areas too. By identifying which employees or departments aren’t contributing toward your company’s goals, your CFO can provide much-needed insight into the hardest decisions.

Key Takeaways:

  • Restructuring can help your business run more efficiently.
  • A poorly executed restructuring can do more harm than good.

The 7 Different Types of Business Restructuring

There are many different types of restructuring plans because there are different reasons why you might need to restructure in the first place. Here are seven different business restructuring models and when they are most appropriate to use.

  1. Cost Restructuring

    Cost restructuring is perhaps the most straightforward way to reduce overhead and leave enough cash left over to cover your debts. This may involve reducing department budgets, downsizing the company, or automating certain processes.

  2. Divestment

    Divestment is when businesses close a division of the company. The closure occurs because the entity is underperforming or because the company’s needs have changed and the division’s services are no longer required.

  3. Legal Restructuring

    A legal restructuring takes place when a business must restructure due to legal implications. This is often when businesses come under new ownership or become their own legal entity. Some business departments must also operate under certain legal practices—you may enact a legal restructuring to ensure those practices are observed.

  4. Mergers and Acquisitions

    In the case of two or more businesses combining into a single entity, a merger and acquisition restructuring will take place. This essentially consolidates the resources of multiple businesses in a way that maintains efficiency and keeps operational costs low. The same applies when combining divisions within the same company.

  5. Reposition Restructuring

    This occurs when businesses want to change their business model and service offering, such as when a computer design company switches to only developing software. Repositioning also refers to when a company wishes to expand its focus into other ventures, just as Amazon did when it expanded from selling books online to other products.

  6. Spin-Off Restructuring

    Spin-off restructuring refers to when a division of a company expands into its own business. This allows the original company to take on the role of a parent company, while the division can expand and gain value.

  7. Turnaround Restructuring

    Turnaround restructuring is the most aggressive form of restructuring because it deals with a large portion of the company. It may involve restructuring the business’s headcount, changing how a production line operates, liquidating non-performing assets and/or changing how the company works entirely. This change may result from a difference in customer desires from the company or evolving industry trends.

It can be hard to take an objective look at turnaround restructuring, especially if you’ve spent most of your career building the organization. That’s when a CFO can become an ideal strategic business partner. They can provide the financial realism you need to see your company’s processes from a clear perspective.

Key Takeaways:

  • Companies must choose which type of restructuring to implement based on their situations.
  • Not every restructuring is to cut costs—some are to open new opportunities.

Restructuring vs Reconfiguration vs Liquidation

There are a few other terms you may run into when thinking about business restructuring, namely reconfiguration and liquidation. Let’s discuss how these terms differ from restructuring.

Restructuring vs Reconfiguration

Reconfiguration is very similar to restructuring in that it deals with reorganizing business units. However, reconfiguration does not deal with business structure—the point of reconfiguration is to change as much as possible while still maintaining a common culture and sense of business continuity.

Restructuring vs Liquidation

Liquidation is the process of selling a company’s assets and applying the proceeds to pay off company debts. A CFO can help determine what recovery to creditors may look like in a liquidation.

Key Takeaways:

  • Liquidation and reconfiguration are not synonymous with restructuring.
  • Both restructuring and liquidation can play a part in a restructuring strategy.

How Do You Keep Companies And Team Intact During Restructuring?

Even if you plan the perfect restructuring strategy, it won’t work well unless you know how to communicate your decisions to your employees properly. Follow these three steps to be more transparent and keep your teams intact during a restructure.

1. Establish the Vision

When your restructuring plan is finalized among your executive team, be completely transparent about it with your employees. Try to answer the following questions in your communication:

  • How will the company’s operations change?
  • How will the employee experience change as a result of the restructuring?
  • What is the desired result of the change?

Your CFO may offer some financial insights you can share with the company to show the projected financial gains of the restructuring. This can help your employees have a better idea of why this needed to happen in the first place.

Your CFO can help advise you on the best way to communicate. Sometimes it may be best to kick off the restructuring announcement with a company-wide meeting. That way, your employees can hear the news all at once from the source, rather than learning secondhand from their manager.

2. Clarify Your Employees’ Roles

Your employees want to know what part they will play in this restructuring. Give them a defined mission and put the power of the restructuring’s success in their hands.

  • Will employee roles change? If so, how?
  • Will there be training for the new or altered roles?
  • Which departments are shrinking or growing as a result?

This clarification will have to go beyond an initial announcement. Have your team leads work directly with each employee, so everyone understands how their roles have changed.

Your CFO may suggest how certain roles and departments should change while designing the restructuring process. Work with these suggestions while also meeting frequently with your employees to ensure you have a good pulse check on your business.

3. Chart the Course

Set expectations for how the restructuring should be handled. You must also give frequent updates on how the change is going.

  • What success metrics properly illustrate positive progress? (Your CFO will be a good resource to help determine this).
  • How will you update employees on this progress?
  • How will employees be compensated during this change?

Be sure to reward your employees for sticking around—that will help incentivize them to continue working through the restructuring, especially when things don’t go as planned.

Key Takeaways:

  • Be clear with your intentions to your employees.
  • Update your employees frequently to keep them focused on the overarching goal.

Restructure Your Business With Amplēo’s Help

Business restructuring always carries risk—changing the status quo may alienate certain employees or cause your business to be more tumultuous than it was before. That’s why you need a trusted partner, like a CFO or Certified Turnaround Professional from Amplēo, to get the job done.

With a CFO on your team, you’ll better understand the financial implications of your restructuring to take more calculated risks, thus improving your chances of a successful and profitable restructuring. Contact us today to learn more about our turnaround restructuring services.