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Insight Series: Business Restructuring

Business Restructuring

It’s not uncommon for businesses to go through a period, or more, where change becomes critical for survival. Even without the recent extreme disruptions of a global pandemic, supply chain unpredictability, political polarisation, military conflict, rising inflation, soaring unemployment, and steady social evolution, companies can rapidly find themselves in financial difficulties.

Competitive market conditions, changing capital costs, tight labour markets, fickle consumer preferences, and digital disruption are among the factors that can tip a successful company into insolvency within a few quarters.

Almost 4,000 Australian companies declared bankruptcy in 2021-2022, which is remarkably unremarkable among the bankruptcy stats tracked by ASIC over the last 25 years.


Common signals a business needs restructuring

Saltire recently sat down with Philip Campbell-Wilson, a Partner with GT’s Restructuring Advisory team, to talk about some common signs a company needs restructuring. An expert with restructuring and turnaround advisory services, Phil has more than two decades of experience in Australia and the UK and is a long-time connection of the Saltire team. Here, he highlights five signs a business may need restructuring:

Cash flow shortages.
A sure sign a company is likely headed for trouble is if the business can’t pay off its debts when bills are due. Poor cash flow can threaten solvency by compromising daily operations, supplier and customer relationships, a firm’s credit standing, competitive advantage, innovation and expansion plans, talent retention, and so much more.

Sluggish growth.

Every business owner and operator wants to achieve growth. However, if your business cannot grow and makes just enough money to stay operational, and service debt, without reducing debt, take note. Even if the company returns a steady profit margin and holds onto market share, a lack of sustained growth likely means a corporate restructure may be beneficial. 

Dropping revenues.
Unsurprisingly, weak financial metrics signal a business is in trouble. Declining revenues usually indicate a company isn’t optimised for profitability. Maybe sales are declining, expenses are rising, or a combination of the two. Whatever factors are causing revenues to drop, they need prompt attention.

Soaring expenses.
As a business grows and expands, it’s critical to ensure earnings cover expenses. While investing in a future vision with bigger offices, more senior talent, or a luscious marketing campaign is tempting, temper those desires with prudency to ensure the business never spends more than it earns.

Operational inefficiencies.
Regular operational inefficiencies can be a warning sign that a business needs restructuring. Particularly when inefficient processes hinder customer service, slow sales cycles, mean compliance regulations aren’t met, cost the company money, or increase operating risk. 

What to do if you’re seeing negative business signals.

Many executives managing a business that needs restructuring are incredibly worried and anxious. Most have never lived that scenario before, and its no-one’s dream to lead a company that isn’t making money, can’t pay debts, has creditors calling daily, can’t service customers, or hold onto staff.

Campbell-Wilson says, “Many Directors haven’t experienced how to get a company on the verge of insolvency back to healthy trading. We often see Directors operating under extreme stress and making knee-jerk decisions. Sometimes a Director will launch an insolvency process when it’s not necessary or make decisions that cause the company’s position to decline further. Emotions run especially high in family businesses because so much is at stake.

Saving a company is hard work and takes tough decisions. We recommend a few pragmatic steps Directors can take if they recognise their business is in trouble:

  1. Move as quickly as possible to address unhealthy business signals. The faster a company can action bad news, the greater the chance of a favourable resolution. 
  2. Never be too proud to ask for expert help. Engage an experienced advisor to help executives understand each stage of the restructuring process and guide the business through decisions while mitigating risk.  
  3. Always focus on cash. Even though the business might be showing other troubling signs, a company with positive cash flow can settle debts, pay expenses, and create a financial buffer for whatever lies ahead.”

Does your business need help with restructuring?

If you’re seeing signals your business may be a candidate for restructuring, please get in touch. We’re ready to work with you to get your business back on track.

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