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When it is time to consider restructuring your company?
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When it is time to consider restructuring your company?

On Behalf of | Jul 20, 2023 | Business & Commercial Law

When starting a company, the structure of it is based on the needs and interests of the company and those involved. Over time, the chosen structure may no longer be the best fit for the company. Financial issues might be the culprit; however, restructuring a company could be signaled by a transition of a new owner, structural changes of the company or in preparation of a sale, buyout or a merger.

No matter the cause of the restructuring, it is important to understand what it is, what it looks like and the benefits and setbacks involved in the process. This information could help a company establish whether this process is a good fit and in its best interests.

What is restructuring?

In simple terms, restructuring is a process that does a complete overhaul of a company’s strategy, setup and operations.

With this, a company might also reorganize by changing its marketing strategies, staff, products, services and even its business name. Often, restructuring is initiated by the need for financial growth; however, it could be related to the need to make changes to the structure of the organization.

Types of restructuring

The two main types of restructuring are financial and organizational. In a financial restructuring, the purpose is to increase the value of the company’s value. This is completed through a substantial change in the financial structure, ownership or control of the company or the company’s business portfolio.

While companies that are struggling financially will go through this type of restructuring, those that are financially stable might choose to restructure as a preventative measure.

In an organizational restructuring, a company changes its business model, structure or processes. This might include the reorganization of the company’s hierarchy, adjustments to the workforce or the creation of new standard operating procedures.

Reasons to initiate this type of reorganization could include the need to maintain a competitive edge, due to changes in work structure and operation, to leverage market opportunities, keep up with the needs of the customers, when a rebranding merger occurs, issues with the internal structure of the company exists or insufficient company leadership.

On a daily, weekly, quarterly and yearly basis, companies make business decisions to benefit the company and those involved.

Restructuring a company might appear to be a significant task to take on; however, it could be a beneficial and lucrative business decision. As such, it is important to understand this process and how it could play a positive role in your company.