Business restructuring is defined as reorganizing a company structure. The motivation to restructure the business may be anything; to become better organized, reduce tax liabilities, deal with difficult times, reduce risks, earn competitive advantage, invest better, or earn more profits. The reason may be anything; however, it brings a change for which the company must be ready. The different types of business restructuring options are:
- Acquisition or merger
- Share reorganization
- Creation of a new holding company
Specifically, in such uncertain times of coronavirus pandemic, many businesses would be contemplating such actions to save themselves from the downturn and set a new path of survival. Therefore, it is of paramount importance to think through it before making a final decision. Businesses must assess all the possible options and must be aware of all the possible benefits and drawbacks before plunging into this restructuring decision. Below are discussed some of the possible benefits to businesses after the business restructuring:
Some business restructuring options may reduce the business costs for companies. For example, if two companies merge, some of the employees may not be necessary for the business, and hence, the payroll costs are saved. In some cases, the equipment used for operations may be cut back to streamline the business operations. Another way of saving on employee costs is the possibility of outsourcing work instead of recruiting new employees for new tasks and activities. Therefore, the overhead expenses are reduced, thereby improving the value for shareholders.
Expansion in assets
In some business restructuring options such as acquisition or merger, the business acquires the assets and goodwill of other businesses. This can enable the companies to improve their business outcomes and hence profits. Therefore, businesses must acquire companies that strengthen the acquiring company with its assets, strengths, and goodwill. A proper complement of the acquiring business can help the company to improve its overall business efficiencies.
Benefit to employees
Generally, at the time of business restructuring decisions, existing employees are offered some benefits such as bonuses, rewards, coupons, or other gift options. A shareholding offer to employees is one of the best gift options to loyal employees, thereby leading to more satisfied employees, and hence, employee retention becomes a possibility.
Improvement in decision-making
Generally, in a business restructuring transaction, either the hierarchy is readjusted, or layers of management are removed. With the change in the arrangement of the hierarchical order, the communication and collaboration between the employees and managers improve. This can lead to better decision making and hence, implementation of new, improved strategies and actions.
Enhancement in operational efficiency
Restructuring of a business may lead to the adoption of new technologies, solutions, or procedures that were already in place in the other company. Such new operating procedures or technologies can result in faster and accurate completion of functional tasks, thereby resulting in operational efficiencies. For example, new artificial intelligence incorporated processes of the acquired company may help the acquirer to adopt these processes in their functions and hence make them better by increasing their operational efficiency.
Decline in risks
There is a possibility of reducing the risks in business through business restructuring. For example, if certain departments are making losses, then acquiring another company with expertise in that function will diminish your financial risks. If a company’s property assets are generating high taxes, then forming a subsidiary company will result in a separate holding of those property assets.
More tax efficiency
In some cases, by business restructuring, a company can achieve a more tax-efficient structure, thereby reducing the tax burden. There are also possibilities of becoming eligible for a few tax reliefs.
Increased opportunities for investment
Some companies are looking for investors to invest in their venture; however, the decision is not going through. Business restructuring can make this possible as it gives an outsider the view that the company has some big plans. This attracts the investors to put their money on the company’s new structuring plan and lead to further growth.
Shareholder dispute resolution
There are possibilities of disputes between the shareholders regarding decisions on the growth strategy or any operational strategy. Business restructuring facilitates a possible resolution of such dispute, specifically in the case of share redistribution transactions.
Whether your business is in distress or you are looking for improving the inefficiencies of a business function, restructuring is a solution that can generate positive results. Restructuring can eliminate inefficiencies, enable the planning and execution of a more robust and sustainable growth framework, improve overall performance, and hence convert any incapability to competencies.
NR Doshi & Partners possess the knowledge and experience of dealing with such business restructuring situations and strategies. We guide our clientele base with the possible restructuring options and selection of the best strategy based on their current business situation, industry condition, economic outlook, and competitive landscape. Our deep domain knowledge and end-to-end approach, along with complete handholding, ensure that the client receives the maximum benefits from such restructuring that help in their growth and sustainability in the market.