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The Guide to Business Restructure

June 28th, 2018

Australian Debt Solvers - Business Restructure (4)

After restructuring, your business should become more profitable, organised and strategic – but only if you do it right.

Changing any element of your business, such as legal aspects, ownership or operational structure, is referred to as restructuring. It’s a complex process to plan and implement, because it typically involves drastic changes that need to be undertaken urgently.

So how can you ensure the process is as smooth as possible and your teams are cohesive afterwards? If you want your business restructure to achieve its stated aims, you’ll need to start with understanding and preparing for what’s involved.

7 reasons to undertake a business restructure

Business restructuring can be used to implement a change in management or ownership, or it can be used to promote business growth.

1. Changing management or ownership

A change in management or ownership, including bringing in new business partners, will likely require a change in the legal structure of the business. This will usually involve mostly paperwork, unless the new owners and management are also planning on restructuring operations, human resources, or some other structural element.

2. Financial reasons

You might be looking at a business restructure to improve revenue, profitability, cash flow, or to achieve other financial goals. Business restructuring can help troubled businesses achieve rapid results in terms of cost cutting.

3. Operational reasons

Restructuring for operational reasons will most likely be aimed at improving specific functions like sales or marketing to optimise operational outcomes.

4. Aligning to trends

Companies might restructure in response to, or in anticipation of, changing trends. This could include consumer trends that make it necessary to change product strategies or business models. Other trends driving business restructure could be high labour costs, a changing regulatory environment, or shifting demographics.

5. Growth

Your business might be growing quickly, entering new markets, or expanding into other product lines, so you might need to restructure to improve productivity.

6. Economic downturn

If the market’s contracting, you might need to downsize your business and simplify your structure to support stagnating demand.

7. Asset protection

You also might undertake restructuring for asset protection reasons.

The bottom line is, business restructures can be implemented to support your business goals and profitability.

Legal obligations during a business restructure

Your business restructure plan should consider and address relevant legal and compliance obligations. Staying on top of your taxes is probably the most critical legal requirement, but reporting and adequate record keeping are also essential.

Market valuation

For large enterprises undergoing restructuring, market value is an important tax issue that shouldn’t be overlooked. Your organisation should seek professional, independent marketing valuations close to the time of the restructure. Staying aware of your tax obligations prior, during, and after your restructure ensures you’re meeting all your reporting and record keeping requirements.

Evolving legal obligations

Obligations may change as your business restructures, so staying aware of necessary legal requirements is vital. For example, your tax obligations will change if the market value of your business changes, or if the market value of a security or intangible asset in your business changes. A change in capital structure, ownership, company acquisition, or a capital gains tax (CGT) rollover are some of the many changes that could also occur in a restructure that can affect your tax obligations. In these cases, make sure you get expert advice on how to obtain an accurate market value of your business and what the corresponding tax obligations are.

For example, the disposal of a valuable asset for CGT purposes can impact your tax bill and CGT discount or CGT small business concessions. If the restructuring process involves a change in your legal structure, consider whether it will impact your CGT obligations if you plan on eventually selling your business.

Formulating your business restructure

Australian Debt Solvers - Business Restructure

Once you’ve identified why you’re restructuring and considered the resulting legal impacts and obligations, you can start formulating your restructure. Your plan should cover each relevant element, including human resources changes, and legal, operational, and financial dimensions.

Change in the legal or business structure

Always ensure you check what the effects of your restructuring process are, as it may or may not include a change in your business structure. For example, if you’re changing from a partnership structure to a trust or company structure, make sure your plan addresses the legal formalities (paperwork). Ensure you’re aware of any tax, asset protection, costs and other implications associated with the legal aspect of changing business structures.

Operational, human resources, financial, and other structures

Your restructuring process will likely include more than a mere change in business or legal structure, especially if you’re restructuring for business-turnaround or financial-improvement reasons. If so, you’ll need to have a clear plan for how you’ll be undertaking the restructure.

Every restructuring plan needs to be based on the underlying reasons for change. Start by reviewing these reasons so you can create a plan to address the goals. Why are you seeking to restructure?

Strategic reboot

Reasons for restructuring may include that business plans are ineffective as they no longer serve your needs, or you’ve experienced unexpected changes such as the resignation of someone in a leadership position. In these cases, you might need a business reboot through a restructure that encompasses strategic planning to get back on track.

Financial pressures

You might be restructuring because of financial pressures and poor sales results. To cover losses you’ll need to cut costs by reviewing your human resources, and the financial and operational elements of your business. With a restructure at these levels, you could give your business a good chance at survival and experience an eventual return to profitability.

Cash flow

Restructuring can be a powerful remedy for poor cash flow management that’s constraining your business growth. Even the best business models can suffer from cash flow constraints and poor working capital, so restructuring could be the way back to a strong business.

More questions to ask include, why is the current situation unsustainable? What would happen if we maintained our current business structure? What’s driving the change, and what will happen if we do change? What are our desired outcomes? Forcing yourself to think about what’s driving the change can help you and your advisers come up with a clearer, more effective restructuring plan.

Respecting your team during changes

As you start planning your restructure, you’ll need to consider the best way to obtain support from your team. Managing a major change like a business restructure requires effective communication for a smooth transition. By ensuring your team is kept up to speed, you’ll also improve the chances of your employees feeling like they’ve been treated with respect at the end of the restructure.

Consider the implications

Consider how restructuring will reflect and/or affect your long-term strategic plan as well as the core values of your organisation. Take time to think about the issues that need to be addressed, from human resources changes to operational considerations. Account for both the potential negative and positive outcomes, whether it’s redundancies, managing employee morale, or improving day-to-day efficiencies.

Likely impacts

It’s time to clarify other issues including the extent of the proposed change, likely time frames, and what you’ll do to reduce any adverse effects.

Other significant impacts of your business restructure include those on your employees. Termination of employment for some of the members on your team could be one of the outcomes. This is likely if your organisational restructure encompasses significant changes in the size and composition of your workplace. Other outcomes for employees can include reduced promotion opportunities or job tenure. Changes to hours of work, increased training, and restructuring of job scopes could also be necessary.

Address early rumours

While in the planning stage, your company leadership will most likely be making plans confidentially, so it’s possible rumours may start to circulate around your organisation before you’re ready to make an announcement. If this happens, the best way to deal with it is to address the rumours directly. Be transparent about what you’re planning to do, and this should help reduce staff anxiety and concerns.

Employee communication

Once you’ve committed to your organisational restructure, notify your staff as soon as possible. Invite them to provide their feedback even if they’re not directly affected by the restructuring process. Ask for their input about what they’d like to see changed, what’s not working for them, and their ideas for improvement. Keep a record of your discussions.

As you communicate your restructuring plans, be aware that it’s common for employees to experience anxiety and anger. Restructuring often entails major changes and even termination of roles, so manage this stage with open, transparent communication. Prepare your staff for the change, give them plenty of time to adjust, and lessen their feelings of anxiety and loss of control by asking for their input and demonstrating you’re listening to them.

Developing your restructure plan

A formalised restructuring plan can help you communicate the changes to the rest of the organisation. It’s also a good way to maintain consistency and consensus among employees as you implement the changes, which can take weeks or months to complete. Your restructuring goals should be SMART: specific, measurable, achievable, relevant, and timely.

Your change plan should include everything from reasons for the restructure, to the nature and extent of the proposed restructure. It should cover your goals and aims, along with impacts on employees, changes to staffing arrangements, and how the restructure will be carried out so that employees understand the process.

Any resources you’ll be using and key milestones for tracking progress should be covered – this includes communication, time frames and consultations. If you’re a large organisation, you might have a special leadership team dedicated to implementing the change. If so, introduce them by name and outline their responsibilities to your employees.

Communication and proposals in four stages

Once you’ve created a written proposal or plan for the restructure, the process could include the following steps.

1. Meeting with employees

Hold a formal meeting with employees who’ll be affected by the changes. Use the opportunity to give them a copy of the proposal to help them understand what’s planned. Explain aims, outcomes, and likely changes on a timeline. Provide your employees with plenty of opportunities to voice their concerns by scheduling other meetings a few days afterwards.

If the restructure will include retraining, reclassification of roles, redeployment, or redundancy, be transparent and open about these. Explain how you’ll be supporting staff in adjusting to the change, and how you’ll help staff who’ll be made redundant with finding alternative employment.

2. Reassurance and explanations

After your first formal meeting, you might need to provide your teams with extra reassurance, explanations, and one-on-one time to help with a smooth transition. This can be a critical time for getting your team on board with the sweeping changes of your business restructure. Help your employees to accept the changes with clear communication – lack of internal communication can be destabilising for the restructuring process. Acknowledge the potential negatives associated with the restructure, but reinforce the need for change by explaining the long-term goals.

3. Address obstacles

Anticipating obstacles and working to address them is an essential role for a successful organisational leader. Look for ways to empower every employee to take part in the business restructure, and identify and address areas of resistance. Provide guidance and time to team members who need more help with adapting to the change.

4. Embed the transition

Leadership should continue to embed the transition by offering training and support, monitoring outcomes, and working to remove obstacles to the restructuring process. Ensure milestones are reached and the changes are implemented according to the time frame.

Implementing a successful restructure

Research suggests the majority of businesses that undertake transformations will fail or abandon their change program. To avoid failure, your company leadership should have a framework developed that provides solutions for all possible negative outcomes.

Achieving support and sustaining momentum

First, it’s crucial to create a sense of urgency. Empowering your staff members and creating short-term wins can sustain the momentum your business might need to achieve a large-scale change. Once you’ve started to achieve some of the changes, consolidate them and keep producing more. Entrench these early in your restructuring process to enhance your chance of success.

Internal alignment

Again, businesses that succeed at major transformations are those that successfully obtain internal alignment on both strategic and criteria objectives of the change before they implement the transformation. This could mean writing up your proposal and sharing it, as outlined above, and it could involve working closely with your managers to achieve consensus before the restructuring process begins.

Managing mindsets and behaviours

During the implementation stage, continue to proactively manage mindsets as well as behaviours. Keep in mind that resistance from employees can be a major obstacle to a successful restructure. Aim to gain support from employees as early as possible, and continue to manage their morale by communicating, building trust, and seeking input. Don’t take your team’s consensus for granted; ensure everyone is on board with the change by continuing to sell the restructure as essential to the success of the organisation, as well as every staff member.

Rigorous decision-making processes

Avoid ad-hoc and opaque decision-making processes throughout the restructure. Ensure changes are implemented in a transparent, open (yet authoritative) manner – this way there’ll be a defused resistance from team members and a reduced risk of doubt about fairness or direction.

Adjustment

Large-scale restructurings are never free from errors because you can’t anticipate everything. Commit to correcting and adjusting your restructuring plan as often as necessary, whether it’s a major change or a small one.

Handling redundancy

Redundancy is often a part of the business restructuring process. Employers need to ensure their redundancy process is legally compliant to reduce the risk of unfair dismissal claims against the organisation. You’ll also want to provide affected team members with as much notice as possible. The ideal outcome of redundancy is that the organisation ends up with the best team going forward, while ensuring those who are made redundant are treated fairly.

For legal compliance, start by ensuring you have the business case for the redundancy laid out. Also identify how much you can save with the program. Then conduct your staff consultations with affected employees as soon as possible, with trade union members and the team member’s legal representatives present if necessary.

You can then proceed to identify your selection pool by using fair selection criteria and rating the team members in an objective manner. Check the applicable laws and seek legal advice to follow regulatory requirements throughout the entire redundancy process.

Engaging employees post restructure

Australian Debt Solvers - Business Restructure (3)

Have a plan for addressing employee morale and organisational culture after the restructuring process. This can help keep staff members engaged, motivated, and productive after redundancies. Ensure your line managers are on board with your post-restructure process so they can assist with keeping staff members happy following the restructure. The absence of a post-restructure strategy can lead to employees feeling distrust and unmotivated, and this could reduce productivity and raise turnover.

So what are some of the way you can re-engage your employees, and keep them happy and productive?

Acknowledge

Bring your teams together as soon as possible after the restructuring process is completed and acknowledge what has happened. Recognise redundancies are never pleasant but use the opportunity to set out your new vision for the business. Communicate to employees that your leadership has an open-door policy and managers are always ready to hear feedback and input. Recognise it can be an emotional time for your team, and work to reassure them.

Feedback

Seeking feedback and giving employees an opportunity to state their opinions can support a more cohesive culture as your company adapts to a restructuring. Provide feedback opportunities for employees in a group, one-on-one, or informal setting. Be transparent, open, and receptive, and thank your team members for their contributions.

Manage workloads

Restructuring can lead to heavier workloads for remaining employees, even if only on a temporary basis. Let staff know you’re aware they’re under pressure to do more work, and provide them with the support, resources, and mentoring they might need to get the work done. Frame it as an opportunity for learning and growth, and reward staff for getting the work done.

Reinforce the purpose

Continue to remind staff members of why the restructuring was undertaken and how it benefits them. Remind them a stronger company means more opportunities, job security, and career pathways for every team member.

Provide clarity

Avoid promising guaranteed job security if there’ll be more redundancies, but offer as much clarity as you can for each employee. Let them know their contribution is valued and appreciated.

Other things to do on an ongoing basis is to hold regular meetings to check in with staff members about the new distribution of tasks, changed processes, and progress of the restructuring program. This gives staff an opportunity to share their insights, and it also allows you to keep track of what’s happening. Provide other channels for staff feedback, including online forums and even anonymous surveys. If you continue to build trust and keep staff committed to the new changes, you’ll give the restructure the best chance of achieving your organisation’s stated goals.

Be prepared, clear and structured in your actions

Business restructures can be essential for struggling organisations, while for others, it’s a proactive way to address emerging market trends and maintain business competitiveness. Your organisational restructure can involve changes in the legal, structural, operational, or human resources dimensions, and will cause significant changes that affect everyone in your organisation.

Obtaining and sustaining staff opinion is critical, along with clear communication and maintaining trust. By avoiding common failures like not sustaining momentum and inadequate internal alignment, you could set up a pathway to success that galvanises your team to make the planned transition to success.

Australian Debt Solvers are leaders in financial advisory for those who are facing financial problems. Our team of restructure and turnaround experts can guide your organisation on everything from strategic advice and cash flow, to financial and operational restructuring. Contact our team today for a free 15-minute consultation about what we can do to help your business get back on track.

If Your Business Finances Are Out Of Control, We Can Help.
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David Hill
David has over 15 years in the insolvency industry – advising clients through restructuring of their business. His clear, “straight up” style provides clients with a strong direction of what they need to do, and how the process will work. As importantly, he brings empathy to the process – which is essential at a “high-stress” time for clients.

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