Corporate restructuring is the process of redesigning one or more aspects of a company. The process of reorganizing a company may be implemented due to a number of different factors, such as positioning the company to be more competitive, survive a currently adverse economic climate, or poise the corporation to move in an entirely new direction. Here are some examples of why corporate restructuring may take place and what it can mean for the company.
Restructuring a corporate entity is often a necessity when the company has grown to the point that the original structure can no longer efficiently manage the output and general interests of the company. Corporate 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.
Other reasons for restructuring include a change of ownership or ownership structure, demerger, or a response to a crisis or major change in the business such as bankruptcy, repositioning, or buyout. Restructuring may also be described as corporate restructuring, debt restructuring and financial restructuring.
1. Steps of corporate restructuring
(1) Ensure the company has enough liquidity to operate during implementation of a complete restructuring;
(2) Produce accurate working capital forecasts;
(3) Provide open and clear lines of communication with creditors who mostly control the company's ability to raise financing;
(4) Update detailed business plan and considerations.
2. Success factors in corporate restructuring
(1) Focus restructuring on all dimensions of business-process-technology-organization;
(2) Have a systematic methodology & fact focused approach;
(3) Keep the time factor in mind;
(4) Have a partnership participation. All put in their efforts;
(5) Have a visible active partnership.
3. Advantages of corporate restructuring
(1) One of the main reasons that businesses use corporate restructuring is to divide the business up for sale. If a company is trying to sell as a conglomerate, it will likely get lower offers from investors. When the company is split up into separate parts, it can often get better offers for those individual parts. This can increase the value of the company as a whole and help get a higher sales price for the business.
(2) Reduce Costs
Another benefit of restructuring a company is to reduce business costs. For example, a company could merge with another company that is very similar and use economies of scale to run more efficiently. It could cut back on employees and equipment to streamline business operations. In this way, the company can expand its reach without adding too much to the overhead of the business. If handled correctly, the company can add significant value for its shareholders.
4. Disadvantages of corporate restructuring
(1) Costs of Restructure
Even though you can reduce long-term costs by restructuring the business, the process of restructuring can be expensive in itself. When a company restructures itself, it must pay legal fees and other costs associated with the restructure. If a company merges with another company, it will also have to come up with the money to buy the other company. If the restructure does not work out, it could cost the company dearly and ultimately lead to its demise.
(2) Hurt Employee Relations
When a company goes through a corporate restructure, it can significantly hurt its relations with employees. Employees fear change and when they are scared of being downsized, it can affect morale. In many of these moves, companies have to release some of the workforce. This can affect the loyalty of employees and it could hurt the company in the long run. When employees do not know if they will be one of the unlucky few who get released, it can create tension.
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