What Does Restructuring Mean in Business?
Restructuring in business means an organization significantly modifies its financial and/or operational processes to become more financially solvent. A business restructuring may involve any number of restructuring strategies, such as downsizing staff, cutting back on certain expenditures, or reorganizing and redefining job positions to lower redundancies.
A business restructuring also means the organization might require outside help to improve its financial situation. A restructuring may come as a court-mandated change, particularly if the organization files for bankruptcy. In the process, a restructuring service will often collaborate with the organization.
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When Is Business Restructuring Required?
An organization may wish to restructure for a variety of reasons, including:
- Poor earnings/sales performance
- Excessive debts
- Lack of competitive advantage in the marketplace
- Changes in the overall goal of the company (like a change in products)
A business restructuring may also be a precursor to a merger and acquisition. This process would ensure that the organization enters the market as a financially solvent entity.
Are There Different Kinds of Business Restructuring?
The two most common types of business restructuring are operational and financial turnarounds.
Operational turnarounds occur when a company operates inefficiently. An inflated management team, ineffectively priced goods, or an outdated expense structure may cause inefficiencies. A business restructuring is what could help identify these operational inefficiencies and produce the best solution to correct them.
Financial turnarounds occur when the organization’s balance sheet is insolvent. The business restructuring would then consolidate unsettled debts, liquidate underperforming assets, and negotiate payment to creditors to properly balance the organization’s financials.