Business Restructuring: What & Why

As we approach the election season in Nigeria, one recurrent theme in the news is ‘Restructuring’. Regardless of party orientation, this term seems to be on everyone’s lips and it makes you wonder what has made this innocuous term a buzzword? Well, this article isn’t about politics, so let’s leave that and talk about Business Restructuring.

In simple terms, Business Restructuring is the act of changing the business model (strategic & operational) of an organization to transform it for the better. It is a way of ensuring and improving the organization’s productivity. Usually, businesses have an archetypal structure, developed in a way to establish how the organization functions and carries out its activities in pursuit of its goals. For example, an organization may be structured along business lines or divisions. Restructuring occurs when a business decides to reorganize its operations to increase the effectiveness of its operations.

According to an article from Forbes Burton, Business Restructuring is about “improving the operational, financial, legal, or other structures of your business to maximise its profit and to ensure efficient operation”.

Restructuring can be disruptive and painful if not properly managed and as such, for the business restructuring to achieve the desired objective, it will need the joint efforts of business experts, the company management’s team, and key shareholders internally and externally.

However, once completed, it should translate into a smoother, more economically sound and productive business process.

But hold that thought: why would any business owner want to restructure her business? The idea of change and all the uncertainties it brings can sound scary. But with disruptive forces like technology and competitive market conditions pervading the ecosystem, not changing is even scarier.

What’s the need for a business to consider restructuring?

From our experience helping MSMEs, one or more of the following reasons, which can be externally or internally driven, suggests that a business is ripe for restructuring:

  1. Financial distress: You are experiencing declining revenue, having cash flow shortages, spending more than you are making or having to be heavily dependent on debt. All these results in an inability or difficulty to pay creditors, and you need to consider restructuring.
  2. Expansion: You are introducing a new product/service line, or buying another company, incorporating a new business strategy, or developing a different way of working because growth is stagnating. You need to review your business structure to ensure that efficiency and effectiveness does not slip.
  3. Organizational Structure Issues: If you notice a redundancy in operations due to the way the business operation is structured, or expansion and growth have resulted in complex management that could benefit from being simplified, or perhaps your staff lack responsiveness and entire portions or your business have become redundant leading to poor competitiveness.
  4. Legal Issues: New laws may force the need for a review of your process or introduce new ones that need to be adopted quickly into your existing structure, so as to ensure compliance.
  5. Shifting customer base: If your customer base is declining, or customers are buying less or just looking for another product or service, or there is a high level of customer dissatisfaction, a restructured process could help you find new ways to deliver the same for less, improve customer satisfaction, shift into a new complementary product line, or otherwise meet your target customer base.

These are some of the reasons businesses may need a restructuring. So if you can identify with one or more of the above mentioned reasons, it may be time to start exploring the option of restructuring your business for maximum effectiveness and efficiency.

In the next article for this series, we will talk about the pros and cons of Business Restructuring (Business Reorganization in general), and how to determine just how much of it you need. In the meantime, chew on this and see if your business falls into any of the listed categories.

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