Restructuring your business in tough economic times.
South Africa is in very tough economic times, this has caused businesses to have a long hard look at how they can maximise their returns. We live in an ever changing business environment, to be competitive we need to adapt to these changing conditions, maybe you need to restructure your business, the question is how?
What is restructuring?
Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs.
When should you consider restructuring?
Like anything in life you must have a good reason as to why you want to make changes.
· Your business is no longer making a profit.
· Client and employee turnover is high.
· Morale is low.
· Systems no longer work.
· Efficiencies are low.
· Numerous mistakes are being made.
· Your industry is changing.
· Outsourcing certain departments/functions.
Benefits of Restructuring
· Financial – reviving a failing business.
· Increasing the value of a business.
· Preparing the business for a sales or hand over to the next generation.
· Gaining a competitive advantage.
· Allowing the company to survive.
When deciding to restructure your business it must be properly planned - no shooting from the hip it’s too important, this is your livelihood you are dealing with and whatever you do, you need to ensure that these actions have a good chance of success.
If you fail to plan, you plan to fail. It is important to prepare a project plan encompassing
· Proposed changes.
· Time frame for each part of the project.
· Person responsible for each aspect of the project.
Areas for Examination
· Financial results.
o Are you making a profit or a loss?
o Are there any unnecessary expenses?
o Are there any unusual trends?
· Operational processes.
o Are they effective?
o Are they giving you the results you want?
o Are there any processes which could be streamlined or eliminated?
· Customer base.
o Is it cost effective to do business with the customer?
o Is the customer generating a profit for you?
o Can the customer become profitable for you?
o Should you discard the customer or is it a strategic business association?
o Are there products which are unprofitable?
o Can we eliminate these products?
o Can the product be re-engineered to make it profitable?
o Have you too many products?
o Are your suppliers reliable?
o Do your suppliers deliver their goods or services promptly? If they cause you to miss deadlines, this effects your profitability avoid dealing with them.
o Are you getting the best prices? You need to balance price against their ability to supply goods and services when you want them. It’s no good saving money if you lose money because you can’t meet your delivery dates.
· Skills Base
To achieve results you need skilled, motivated people.
o Who are passengers in your business?
o Do you need to upskill your staff?
o Have you too many people?
o What are your capacity requirements to maintain your customer order levels?
Are the premises
o In the correct location?
o Suitable for our capacity needs?
o Do we have to relocate the business?
o What technology changes are required?
· Cash flow
o Does the restructuring improve our business in the long term?
When making changes to your business an important area is whether the proposed changes meet with the legal requirements of the Companies, Income Tax Acts as well as any laws specific to your industry. Are there existing contracts which need to be changed as a result of your restructuring plan?
It’s advisable to involve your lawyer and accountant in this aspect of your restructuring process.
Without a timeframe any plan you make is useless so it is important that for each aspect of your plan
o Allocate a start and end date
o Person responsible for completion of that phase of the plan.
It is important that the restructuring process is done as fast as possible without sacrificing implementation quality.
Complexity costs. Whether it is a complex organisational structure, a complex product offering or complex transactional processes, the added cost of complexity can be a drag on performance.
To mitigate complexity, there are three considerations that help with organisational design:
- Design structure for strategy before you design for specific personnel. Organisational redesigns which are a compromise between strategic intent and line management preferences inevitably add complexity. So, while internal political intrigue is unavoidable, at least start with a clean and clear design that matches to strategy.
- Avoid making leadership roles too complex.
- Minimise the use of matrices. They introduce measurement overhead and a lack of clear direction to the staff.
Whilst we would all like to think that we have a crystal ball and can predict the future accurately. This is extremely far from the truth, we can never predict the future accurately therefore it is imperative we build some wriggle room in our plan in order to cater for unforeseen circumstances.
It is important that you involve your management team in all aspects and discussions relating to your proposed restructuring as well as the results of the investigation. Be open to others opinions and be transparent in your communication. Restructuring is a sensitive issue and it is vital that the trust of all parties is maintained.
Restructuring requires skill and sound business knowledge, in most instances it would be beneficial to employ the services of a recognised professional.
Why a professional?
o Less emotional
o Acts as a sounding board.
o Minimises the decision risk.
Remember you are dealing with your business, yours and your employees’ livelihoods, which is not to be taken lightly.
Brian Taylor is Chartered Accountant with 35 years business experience and a director of TFA Global (Pty) Ltd an business accounting practice catering for the individual and business accounting, tax and business advisory needs. He can be contacted