Whether you’re a sole proprietorship, an LLC, partnership, etc. there may come a time when you should think about restructuring your small business.
What key items should you consider before undergoing restructuring?
Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational or other structures of a company for the purpose of making it more profitable or more efficient for its current needs. Other reasons for restructuring a business can include a change of ownership or ownership structure, preparation for major growth involving new products or services, or a response to a crisis or major change in the small business such as bankruptcy, repositioning or a buyout. Restructuring may also be called corporate restructuring, debt restructuring or financial restructuring.
Leaders of both small and large businesses often hire financial and legal advisors to assist in the details of the transaction and related negotiations. This process generally involves financing debt, selling portions of the small business to investors, or reorganizing or reducing operations.
Planning for Corporate Restructuring
The process of restructuring a small business typically involves diagnosis, planning and implementation. The diagnosis phase looks much like a feasibility study and includes assessments of a variety of potential business scenarios. The planning stage involves formulating detailed operational and strategic plans—the “nuts and bolts” of the restructuring process. Implementation will follow the business restructuring plans approved by the small business owners and other important stakeholders and constituents. It’s important to recognize that the process of restructuring a small business is quite extensive and can require a minimum of several months to execute and often will take more than a year to complete.
There are many different aspects of a small business restructuring to consider, including the importance of involving stakeholders, adherence to any legal restrictions and flexibility during the implementation phase. While there are no specific laws or government regulations stipulating what needs to be included in a small business restructuring plan, it is not unusual for legal challenges to emerge. In particular, corporate lenders and any other parties with a vested financial interest in the small business will likely have questions and concerns involving their role in the restructuring.
Implementing a New Business Plan
Once a small business corporate restructuring plan is developed and approved, the resulting document effectively supersedes the small business’ original business plan. This is likely to be more detailed and time-sensitive than a traditional plan for a small business. One key to success is determining how effective business owners and managers are at adapting to key changes during the implementation phase. As a small business owner contemplating even the most basic restructuring, it’s important to be prepared for the challenges ahead.
Results of Restructuring your Small Business
A small business that has been restructured effectively will be leaner, more efficient, better organized and better focused on its core business with a revised strategic and financial imperative.