Many businesses face challenges, including increased competition, new technologies, and government regulations. In addition, business models that worked for the company during its early years of operation may no longer be sustainable five years later. Sometimes, a company may need to undergo corporate restructuring to manage its finances better and improve its overall profitability. Some signs of a company needing restructuring include rapid growth, inefficient structure, and accumulating debt.
A company in need of a change can benefit from corporate restructuring services. Companies may need to restructure to continue operating, whether due to a change in the market or legal environment. Additionally, some businesses, such as FTI Consulting, offer debt restructuring services so that customers can benefit from lower interest rates and free up money for new investment opportunities.
Many companies seek mergers and acquisitions as a way to achieve business synergies. However, a merged entity may not be as valuable as its separate parts. For this reason, companies may sell off a division rather than continue as a standalone entity. In other cases, divesting a subsidiary can reduce debt, increase liquidity, and improve access to financing or favorable terms.
Corporate restructuring services are necessary for situations where major changes are required in a business. For example, these changes might involve reducing or eliminating certain costs to improve the company’s efficiency. It’s also a good idea to evaluate existing and prospective risks in the business and have a systematic risk assessment process before embarking on a corporate restructuring plan. For example, when a company is in financial distress, it may need to restructure its debts. Successful debt restructuring requires the ability to negotiate with creditors and a thorough knowledge of the legal regulations.
While corporate restructuring is a complex process with many costs, it can benefit a business in many ways. It helps a company regain its profitability metrics by reducing operating costs and improving management efficiency. In addition, companies can use restructuring to reduce their taxes. Multinational companies face complex global tax codes, making tax planning extremely important.
Cash flow is an important aspect of corporate restructuring services. Cash flow determines how much debt a company can sustain. If a company has more debt than cash flow, it cannot make interest payments. In such a case, the company will likely seek professional assistance. Alternatively, it can opt for informal restructuring services.
During a restructuring process, creditors should make provisions for the expected cash flow and consider any other aspects of the restructuring, such as debt rescheduling, debt-to-equity conversions, and loan write-offs. Additionally, creditors should make provisions for possible losses on the remaining debt. For instance, a restructuring may require a government recapitalization, resulting in the loss of creditors’ debt.
When those like the professionals at FTI Consulting perform a cash flow analysis, a business should consider the cash sources for each of the three key categories: operating, financing, and investing. While each of these groups has its traits, they offer different perspectives on a company’s financial health.
Corporate restructuring is a process where a company seeks to regain profitability by cutting costs or increasing revenues. A successful restructuring strategy may include transactions and debt financing. The company may also seek valuation services to evaluate its assets and identify how to best value them. These services may use the market approach, income approach, or cash method to determine the value of a business.
The success of a restructuring should be measured along three dimensions: long-term deterrence of imprudent debt-fueled investments; short-term financial stabilization; and medium-term (6-18 months) operational restructuring that improves profitability, solvency, and liquidity.
Communication With Investors
Communication is a key aspect of the restructuring process. Investors need to understand the progress of the company. It’s also important to communicate lingering issues. If one of these issues isn’t properly addressed, the restructuring process will fail.
Corporate restructurings are costly and complex processes. While some can provide a reasonable return on investment, not all reorganizations will be successful. Therefore, it is critical to perform a cost-benefit analysis. The communication process should include disclosure of all costs and benefits to investors. In addition, the investor must be aware of the company’s financial and operational risks and potential losses.
Communication with investors is essential for managers. Moreover, it can help increase the value of the restructuring process. Therefore, managers should be prepared to provide useful information to analysts and investors. This information will help them value the restructuring more accurately. However, managers should consider how much of this information is appropriate for public release.