Bankruptcy isn’t as common as you might think. As a matter of fact, businesses accounted for only 2.9% of bankruptcies in 2022. That said, it’s still a real concern that looms heavy on every business owner’s mind.
You might even think it’s your only option. But we have some good news for you: That’s not the case. Another path to recovery is business restructuring.
Business restructuring can help your company avoid bankruptcy and continue providing the services it’s known for. No matter how tough things may seem, keep reading to uncover how business restructuring might just be the lifeline your company needs.
Types of Business Restructuring
Financial restructuring is the most common. It involves changes to the capital structure of the company, such as debt, equity, or a mix of both, to improve financial stability.
This occurs when a company makes changes to its operations to improve its efficiency. It could mean modifying supply chains, adjusting production processes, or even revamping staff. By improving operational efficiency, a company can reduce expenses and increase income, helping it stay financially healthy.
Strategic restructuring is about changing a company’s main goals to make it stronger and more financially secure. This can involve finding new markets, adjusting products, or working with different partners. Aligning your business strategy to fit what people want and how things change can earn you more customers and more money.
In this type of restructuring, changes are made to the structure of the company. Think of mergers, demergers, or acquisitions, among others.
Cultural restructuring is changing the prevailing attitudes, behavioral patterns, and values within a business or organizational setting.
For example, if your company doesn’t track expenses, it should start. You may be overlooking areas where you’re overspending. It’s essential to budget and track costs for better financial health.
Business Debt Restructuring Options
Facing the reality that your business may not be able to repay its debts in the coming period feels tough, but there’s hope. A practical solution to think about is debt restructuring. You have a few helpful options.
The first step is straightforward: Get in touch with the people or companies you owe money to. Talking about your current financial struggles can feel challenging, but it’s crucial. Honesty and a willingness to find a solution can make lenders more inclined to help you.
Payment deferrals, also known as payment holidays or forbearances, allow you to pause your loan payments for an agreed-upon period. This can give you some breathing room to resolve your financial difficulties. Be aware that your remaining loan balance may increase.
Extending the Loan Term
By doing this, your monthly payments will be smaller, making them more manageable in the short term. This could increase the overall amount you have to repay, as interest will accrue over a longer period. Weigh the benefits of lower monthly payments against the higher total amount repaid.
Waiving Penalty Fees
Lenders may be willing to waive penalty fees that have already been added to your loan balance if you can prove financial hardship. Be prepared to provide records of your financial difficulties, such as balance statements.
Reducing the Interest Rate
Negotiating a reduced interest rate can lower your monthly payments and make your loan more affordable. This choice can sometimes be combined with other loan management strategies, like adjusting the principal balance.
Streamlining Business Operations
Another effective way to avoid bankruptcy is by cutting costs, improving efficiency, and optimizing the way your business runs. Overhead costs like rent for office space or hiring full-time staff can mount up.
Consider transitioning to remote work, which eliminates the cost of maintaining a physical office. If tasks can be completed from home, a virtual office can be just as efficient, with the bonus of saving money on rent, utilities, and office supplies.
For staff, think about necessary roles. You may find that some tasks can be automated or outsourced for less than the cost of a full-time wage. An online customer service center could replace your full-time CSR, for example.
Contact your suppliers and see if there’s any wiggle room for a discount, especially if you’ve been a loyal customer, or if you buy in bulk. Even a small reduction in the cost per unit can amount to significant savings.
It’s best to aim for small rewards when negotiating. It’s easier to get a discount of a few dollars than it is to get free items, for example. Some vendors may find it distasteful that you’re trying to bargain with them, so use discretion.
Outsourcing Non-Core Tasks
Outsourcing non-core tasks involves hiring freelancers for repetitive duties, such as customer service or data entry. This allows you and your team to concentrate on tasks that best serve your company and customers.
Outsourcing is a cost-effective decision, as you only pay for the work done. It eliminates the overhead costs of hiring an employee, such as benefits, training, and office space.
Implementing New Technologies
Project management software, for example, can enhance communication and collaboration within your team. Customer Relationship Management (CRM) software can improve your interaction with customers. Though these technologies require a small investment, increased efficiency can lead to cost savings in the long run.
It’s okay to liquidate assets when they’re not essential. Selling property, equipment, or inventory is arguably the fastest way to get cash to pay off your debts.
Identify which assets can be sold without significantly affecting your business operations. Keep in mind that this should only be a last resort, as it can have long-term effects on your business. There’s no guarantee that you’ll be able to find these assets at the same price in the future.
Understanding Cashflow Projections
One of the first steps you should take when trying to avoid bankruptcy is analyzing your financial situation. By creating revenue projections, you can get a clear understanding of your business’s current financial health.
To do this, collect your financial statements and records. Find your regular expenses and income to come up with a prediction for the next 12 months.
Exploring this strategy might shed light on the possibility of your business sidestepping bankruptcy. On the other hand, it could clarify your concerns and indicate that swift action is necessary to protect your company.
Exploring Bankruptcy Alternatives
Familiarize yourself with bankruptcy law and explore options. While filing for bankruptcy might seem like the solution to extensive debt problems, there can be some significant drawbacks associated with it.
Bankruptcy can have a severe impact on your credit score and stay on your credit report for up to 10 years. This can make it challenging to secure loans, buy a home, or even get a job in the future.
Also, bankruptcy processes are public, which means your financial woes become a matter of public record. This can be emotionally draining. Here are some alternatives to the bankruptcy process.
Out-of-court workouts involve negotiating with your creditors to restructure your debts. You can do this without involving the courts and it usually results in a faster resolution.
Debt mediation is a more formal process than out-of-court workouts. It involves a neutral third-party mediator who works with you and your creditors to come up with a fair debt repayment plan. This option can help you find a middle ground with creditors who have given you a hard time in the past.
Company Voluntary Arrangements (CVA)
A CVA is a legally binding agreement between your business and its creditors. It allows you to pay back your debts over a set period, usually between 3-5 years. You can seek CVA advice for businesses from a financial expert or insolvency practitioner to ensure that this is the right choice for your business.
When to Get Professional Help
It’s great to tackle financial problems head-on, but deciphering whether you can avoid bankruptcy on your own can be tough. If you can stick to a strict budget, negotiate with your creditors, and follow a disciplined financial plan, then you might be able to avoid bankruptcy without professional aid. In contrast, if you’re regularly missing bill payments, using credit to meet everyday expenses, or feeling overwhelmed by your financial situation, it’s time to consider reaching out to a professional.
There are several avenues of professional help available, such as credit counseling agencies, debt settlement firms, and bankruptcy attorneys. Credit counselors assist you in restructuring your budget. Debt settlement firms negotiate with your creditors.
Surely, you might be thinking about the costs attached to these professional services. Adding more to the financial load you’re carrying might be unsettling, but there’s something you need to know. Many credit counseling agencies offer affordable, and in some cases, free services.
Improve Your Financial Status
No matter your situation, you can avoid bankruptcy by proactively addressing your finances. Consider using business restructuring to get your operations back on solid ground. Debt mediation and CVAs are other possible alternatives.
Explore our business section for valuable insights and guidance on enhancing your operations to avoid difficulties in the future. You’ll discover handy tips tailored to help you master this financial journey with confidence.