When Should You Restructure or Reorganize Your Business?

Business needs can change. Growing businesses will also find that with success and increased revenue come challenges that may require a different way of doing things. Organizational structures may no longer work for the company. The market strategy may not match the current market needs. The company might experience financial difficulties. Conversely, things may be going very well now, but there may be concerns about the long-term business outlook. 

In short, there are many reasons why a company can benefit from a business restructuring. But one thing is for certain, nothing is static in business, and companies earning upwards of $5 million annually know that it is important to change with the times, or risk staying behind. An experienced Naperville, IL business law attorney advises businesses on the legal considerations and issues related to reorganizing their business, including advising businesses on reincorporation. 

What Is Business Restructuring?

When a company restructures, it completely changes its approach to business. This could include overhauling its strategy, business model, operations, marketing, and staff, and even sometimes reincorporating as a different type of entity or in another state. 

There are two main types of restructuring: financial and organizational. Financial restructuring involves changing the company’s financial structure or the way its ownership is controlled to increase its value. The company does this by restructuring debt and equity. To restructure debt, the company will negotiate with creditors to reduce or forgive its debt. In exchange, debtors will receive company equity. Equity restructuring involves selling company assets that are not as profitable. It can also involve acquiring new businesses, utilizing new technologies, or even offering new products or services. 

When a business changes its organizational structure, it changes the way it runs its business. This could mean changing the business model, rebranding, changing up the technology the company uses for its daily operations, laying off workers and/or hiring new staff, or changing the company’s hierarchy. The goal in this case is to better adapt to current business needs. 

What Are the Benefits of Restructuring?

Restructuring is a complex process, and one that will take time and strategic thinking. On the other side of restructuring, there are many potential benefits, including:

• Increased profits and reduced debt
• Employee satisfaction and increased ability to obtain and retain talent
• More efficient processes that keep costs under control
• Competitive advantage 
• Company survival in tough times

When Should a Business Consider Restructuring? 

When It Faces Financial Difficulties

When a company faces rising debt and sinking revenue, it might be time to consider restructuring. Likewise, a business that is not facing financial difficulties per se, but has stopped growing or is not competing as it used to should consider restructuring. This can entail renegotiating some debt obligations with creditors, but it can also mean downsizing operations. Businesses might further consider reorganizing as a different type of legal entity to minimize the risk from liabilities or taxation issues. For example, a company that started as a partnership may reorganize as a limited liability company. A company that grew significantly might reorganize in a different state with more favorable laws. 

To Make Room for Growth

Sometimes a company needs to restructure because it has grown to the point that the old business structure no longer serves it, or because it anticipates expansion or wants to set itself up to grow. This is when it makes sense to reevaluate the structure. Do operations need to be streamlined? Is the company using its resources as efficiently as it could? What are the strategic priorities that can best drive future growth? By restructuring to address these questions, a company can prepare to grow. 

To Improve Employment Outcomes

Employees are arguably the heart of a company. Restructuring can not only help improve company morale in the long run, but it can also ensure that employee talents are utilized, and it can help retain key talent. If employees are overworked, company goals may not be met, or productivity may decrease. Employees may decide to look for work elsewhere, leading to high turnover. By bringing in additional staff, restructuring teams, or providing additional support, companies can improve employee outcomes. On the other hand, it may be that employees are not utilized to their full potential. Restructuring can entail assessing employees’ skills and where they may best be leveraged. 

To Adapt the Business to Meet Market Needs

A company can outgrow its business structure. It may also find it is not adapting to changing business needs. Market conditions and needs change, and your customer base may not be what it was when you first started. Perhaps your business expanded, making more revenue and enabling the hiring of more staff. As a result, old management hierarchies are no longer serving the needs of the organization. By restructuring, you can improve the way management makes decisions and how communication happens across the company. 

As a Result of a Merger or Acquisition

Oftentimes, a merger or acquisition forces a company to restructure. Whether you have been acquired or were the acquirer, M&As usually call on a company to streamline operations to account for the absorption of one company by another. By reexamining operations to make two separate entities into one, businesses can integrate the new entity better. This may mean cutting some redundant roles, as well as adding new positions that better serve the company’s needs. 

To Strengthen the Brand

Sometimes, a brand that used to be popular has lost its luster, or the branding no longer appeals to the target audience. Whatever the reason, a company’s brand is how it attracts customers. It needs a strong brand to survive. When a company restructures, it can take that time to rebrand its products and business. 

Call a Naperville, IL Business Lawyer

Businesses making significant revenue need legal representation that understands how business works. That is why the experienced Naperville, IL business law attorney at the Gierach Law Firm combines her years of legal practice with her business education and experience as a business owner. She can provide advice about the legal implications of your company’s restructuring. When your business requires knowledgeable legal representation, call our offices at 630-756-1160.