How to Undertake a Financial Restructuring
The environment in which a business must grow is an unpredictable terrain. Rises and dips in markets, sudden technological breakthroughs, and a finicky consumer base can all render a company's original business model obsolete. If your company is lucky enough to survive its initial entry into this volatile mix, it will invariably have to face unexpected fluctuations in the market.
In many cases, debt burdens and a matrix of suspicious creditors can completely negate the goals of a once-profitable business. Financial restructuring is the most effective way of coping with these stressors, and a complicated apparatus of financial and legal safety nets are available to the savvy corporation.
A carefully considered strategy, which includes bringing in qualified leadership, providing honest forecasts, and encouraging administrative transparency, is the only reliable way to ensure long-term viability in an unpredictable marketplace. Financial restructuring is often a last resort, but invariably the most effective one. Here is what you need to know to get started, whom you'll need to bring in to help, and what challenges to expect once the process is underway.
How to Undertake a Financial Restructuring: Redefine Your Goals
Most business models do not have a ready-made solution to drastic changes in an individual market or a severe downturn in the greater economy. Success is planned for; survival is often resorted to. This might sound grim, but success and survival go hand in hand.
Facing a market environment that can change overnight due to the introduction of new technologies and outlets such as social media is a daunting task for any business manager, and often the initial measures taken are not enough. The consequences of continued dependence on obsolete resources and the shock of sudden market change are challenging, but they can be dealt with.
Before the steps listed below can be taken, executives and employees must accept the realities of financial and corporate restructuring, which can include downsizing, departmental re-organization, and changes at the highest levels of management.
The key concepts that should define your new goal are accuracy and honesty. Interested parties who have a financial stake in the success or failure of a company will demand precise predictions and clear objectives. The importance of accurate forecasting is critical to the success of any restructuring plan. Reductions in operating costs and emergency budgeting are short-term measures intended to solidify long-term profits. Without a plan, the channels of credit and liquidity will quickly dry up, and debt burdens will only continue to accrue.
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How to Undertake a Financial Restructuring: Recognize the Challenges and Bring in Help
Before business models are revamped and organizational systems overhauled, an experienced financial advisor should be brought in to assess the current situation and propose solutions. Here is where financial consultants come to the rescue.
If debt obligations and burdensome operating costs become overwhelming and threaten the immediate viability of your company, financial restructuring is often the only remaining option to keep your business afloat. Fortunately, there are experts available whose job it is to provide reasonable solutions. Consultancy firms such as Plante & Moran and Focus provide resources and advisors that provide critical organizational support from the beginning to end of the process.
If financial forecasts do not predict acceptable timetables for creditors, a plan for debt restructuring is often a necessary procedure. According to Zulqarnain Nizami, a CFO at Al Sraiya Holding Group, based in Doha, Qatar, the right consulting firm should provide most or all of the following qualities:
• Holding experienced human capital
• A good client list with a history of success
• The ability to provide post-restructuring support
• Market experience of at least 10 year.
Nizami points out that the process of restructuring is in many ways similar to product rebranding, and the public face of the endeavor is an important aspect of its success. "If part of the objective is to raise the images of a company by restructuring, then it is preferable to engage a high-profile consultant".
To avoid this, experienced consultants must find ways to replenish the coffers while providing evidence of success to investors. Blake O'Ruairi, a business development manager at Normandy Financial Services out of Olney, Maryland points out the significance of external input. "Companies that go thru re-structuring are usually doing this to streamline process to improve service. This usually boils down to meaning 'we need to save money somehow'. Without the specific knowledge brought by experts into a business to review their process, that company will not find it easy to do."
Most importantly, financial consultants can help ensure operational liquidity while projecting an honest forecast for creditors, shareholders, and management. In many ways the essential goal of restructuring is to convince creditors and stockholders that your company is willing and able to make drastic changes in order to satisfy outstanding debt with repositioning the business within its core market.
Sustainability and profit must be a realistic goal; without creditor and shareholder confidence, the outlook will not be favorable in the long or short term. Creating and preserving financial support from the vested interests is job #1.
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How to Undertake a Financial Restructuring: Identify Leadership
Once the goals are set, there will invariably be some difficult decisions to be made. A financial overhaul might feel like converting an airplane into a helicopter in mid-air, and strong leadership is required to meet the demands of a financial re-boot. Many corporations have found success in turning to a "hired gun": a CEO who is brought in, potentially in a temporary capacity, to implement controversial or painful decisions.
Whether or not your company decides to seek help from outside or continues to rely on internal resources, the CEO should posses a few fundamental qualities. Nizami breaks down the fundamental skill set that the right CEO will bring to the table:
• Ability to define and refine the vision
• Ability to objectively implement and control operations
• Experience in restructuring, in both capital and operational capacity
Considering the challenges and controversies that are sure to be created by the transition, an outside hire is often the natural solution. Until the wagons are circled around leadership and advisory agents that can be relied on with confidence, the specter of imminent bankruptcy will continue to cast a long shadow over the day-to-day challenges of running a business.
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How to Undertake a Financial Restructuring: Prepare to Face the External Challenges
Not only will the new leadership have to deal with amplified scrutiny on behalf of creditors and shareholders, but also the challenges of the 24-hour news cycle. In many cases, those most affected by potential restructuring find out from the media before internal communication has been advanced. Fear spreads quickly, especially when the overall economy is experiencing a downturn. The antidote is a clear vision of emergence that management and staff can get behind and implement with determination. Getting ahead of the media is often a necessary first step in stemming disaster.
Bankruptcy and re-organization, especially when undertaken by major corporations, will naturally result in media attention (and probably more that any resulting success will receive). All involved- management, vested interests, and staff- will need to develop a thick skin.
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How to Undertake a Financial Restructuring: Open the Lines of Communication
The two major lines that need constant and transparent communication are between:
1. Management and employees: In order for financial and debt restructuring to work, all hands need to be on deck. The often-necessary downsizing and overhaul of familiar protocols and processes can create disorientation, stress, and apprehension company-wide. The solution is transparency and the fostering of a community effort.
2. Financial consultants and creditors: At the end of the day, a company's survival may depend of the goodwill of potentially disillusioned creditors and holders of debt. It is the responsibility of the financial consultant, in tandem with the CEO, to present a clear and focused strategy for reducing debt and costs while maintaining market viability. Creditors ensure operation and must be convinced that the compass is pointing in the right direction. It is equally important for those responsible for the plan to present a clear and honest agenda to the staff who will be ultimately responsible for implementing it.
O'Rauiri sees employee feedback as a crucial, and often overlooked, resource. "Management, unless working day to day with the issue their staff have to contend with, usually don't have the same appreciation of problems or solutions. When a blanket "save money" type order comes from HQ or the CEO, management has a tendency to do the things that show immediately (often staff reductions) rather than stepping back and looking at the whole picture. Using your employees' past experience should be compulsory, but isn't."
Clarity and community are key aspects of any transition, and in business, a positive group dynamic is essential to capitalizing on the gains made through restructuring.
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How to Undertake a Financial Restructuring: Stay Committed and Know That Restructuring Works
It is likely that some aspects of restructuring- systemic change, outsourcing, staff reduction- can sow doubt, both internally and externally. To get through this, focused leadership, excellent advice, and complete transparency must be applied to the disruptive and challenging process of reversing a company's downward trend. CEO's and consultants must keep the light at the end of the tunnel bright enough for every concerned party to see clearly- creditors and employees alike.
Although many companies emerge from the darkness of bankruptcy and debt restructuring with less resources and staff than they started out with, there are many examples of the rapid recovery and success that results. An experienced consultant and a focused CEO should be able sustain a corporate juggling act: ensuring a company's operational capacity while assuaging creditors, reducing debt, and suspending the morale of its' staff. Although never easy, the ultimate dividends from financial restructuring are ultimately worth the struggle.
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How to Undertake a Financial Restructuring: Additional Resources
Creating Value Through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups by Stuart C. Gilson
Restructuring For Growth by John C. Michaelson