There are a number of factors to consider before restructuring your business.
With the coronavirus still in full force and people hunkering down nationwide, many businesses are struggling to make ends meet. Approximately 41.3% of businesses had to temporarily close up shop due to COVID-19. And, 1.8% of businesses had to permanently close because of the pandemic.
If your business has been riding the struggle bus like many others these last few months, you may be considering more drastic measures, like restructuring your business, to get through these unprecedented times.
Thinking about restructuring? Not so fast. Before you hop on the restructuring train to save your company, ask yourself some questions (and don’t forget to check out my steps for restructuring success).
Questions to ask yourself before restructuring
For those of you who don’t know, restructuring (aka business reorganization) is when a company overhauls its current strategy, operations, and setup.
When a business reorganizes, it typically goes through a tax structure change. Companies may even change their marketing strategies, offerings, and business name when reorganizing. And according to the IRS, you may need to get a new EIN when you reorganize. Phew, that can be a lot of change.
There are a number of reasons why a business may decide to restructure, including to:
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Reduce costs
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Merge with another company
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Fill performance gaps
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Take the business in a new direction
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Downsize
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Incorporate new technology
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Decrease or consolidate debt
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Spin-off a subsidiary company
Given the current COVID-19 climate, you may be considering reorganizing your business to survive the negative impact. But before you make any big decisions about restructuring your business, you should (like with any other decisions you make) ask yourself some important questions. That way, you can decide which route is the best one to take for your business.
What’s the problem?
Before you jump into making any decisions, narrow down what the problem is. Is it something that can be fixed without reorganizing your company?
Consider writing down your business’s issues to see the big picture of what you’re really dealing with. Pinpoint your main problems and talk yourself through each of them. The goal of this exercise is this: make sure you know why you want to restructure your business.
Have we taken advantage of all COVID-19 funding and loan options?
If you’re thinking about restructuring your business due to the coronavirus, do some digging first. Ask yourself if your business has explored all possible avenues when it comes to COVID-19 funding programs for small businesses.
Even though you can no longer apply for a PPP loan, you still may be able to take advantage of other coronavirus loan options, lines of credit, tax deferrals (e.g., Social Security tax deferral), and tax credits.
Research all of your options to see what kind of relief is out there for your business before jumping the reorganization gun.
How much impact will restructuring have?
Restructuring not only impacts you, but also other aspects of your company. Think about how reorganizing will impact your employees, customers, offerings, finances, and business relationships.
Write out a list (as you can tell, I love my lists) of what will be affected if you were to restructure. Understanding who and what will be impacted by your decision can help you determine whether or not you should move forward with it.
Is reorganization the only possible solution?
Last but not least, ask yourself: Is reorganization the only possible solution for my business? Are there other routes you can take to avoid restructuring altogether? If so, explore those options first before completely reorganizing your business.
4 steps for restructuring your business successfully
Like anything in business, there are plenty of pros and cons when it comes to restructuring your company.
Looking at the pro side of things, reorganizing your business can help you boost profits, improve strategies, and increase efficiency. Of course, you can’t just look at the advantages. Restructuring doesn’t bring all sunshine and rainbows. Some disadvantages to restructuring include setbacks in cash flow, the risk that it won’t work, and potentially confused customers.
I want you to sit back and really take some time to think about the pros and cons of restructuring. Did you think about it long and hard? Good.
If you decided to move forward with reorganizing your business, carry on … and follow these four steps.
1. Come up with a strategy
The four questions you asked yourself in the beginning … remember those? Yeah, those questions shouldn’t slip your mind just because you’ve decided to go the reorganization route. You need to keep those questions in the back of your mind in order to restructure successfully.
With those four questions in mind, I want you to start thinking about your strategy as well as your strengths and weaknesses. Determining these factors will help you spot what exactly needs to change in your company. Not to mention, it can help you come up with a restructuring game plan for your company.
For your strategy, define the problem your company wants to solve. Maybe your business wants to decrease expenses. Or, maybe its goal is to improve your processes. Whatever the case may be, define the problem(s) and work on your strategy.
Along with nailing down which problems your business has and how reorganization can help them, identify strengths and weaknesses in your current structure. Consider using the handy dandy SWOT analysis for this one, folks. Trust me — it will be a huge help.
With your analysis, think about where your current structure is failing and where it’s thriving. Then, start thinking more about your course of action.
2. Weigh all of your options
Restructuring your business doesn’t have to be limited to identity or management reorganization (aka updating things like name, mission statement, offerings, and operations).
Here are some other forms of business restructuring you can choose from:
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Mergers and acquisitions
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Spinoffs and split-offs
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Transfer of assets
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Bankruptcy
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Debt restructuring
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Recapitalization
Keep in mind that only 23% of businesses get it right when it comes to reorganization. So, don’t be in a hurry to make a decision. Weigh the pros and cons of all of your options, do your research, talk to an expert — you know the drill. The more time you take researching your options, the more likely your business is to succeed post-restructure.
3. Communicate your reorganization plan
Once you establish your reorganization game plan and get all of your ducks in a row, it’s time to let people know your plan. And trust me, this is one step you do not want to put off until the very last minute.
Communicate your reorganization plan with your team. Make sure you’re 100% transparent with them. Let them know your reasoning for the reorganization and give your team time to ask questions.
To carry out a successful reorganization, be open and honest with your employees about every aspect of the process. Don’t leave anyone in the dark about what’s going on, and make sure the plan is crystal clear to everyone involved.
4. Launch your restructuring plan
Finally, the part you’ve all been waiting for (drum roll, please). It’s time to launch your restructuring plan!
After you’ve communicated your plans with your team, implement your reorganization plan. Give your team time to adjust to the change. After all, it’s a big change.
Part of this process may be letting your customers know what you’re changing (e.g., company name, offerings, etc.). Depending on what you change, communicate with your customers and be transparent, just like you were with your team.
Post-launch, make sure you track your metrics and goals to see if the restructure is helping your business. And, be sure to closely monitor your profit and loss statement to see where your business’s revenue, expenses, costs, and net income stand.
If you find that you’re still struggling to reach certain goals, consider tweaking some of your current processes and strategies.
