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3 common business transitions during a restructuring bankruptcy

On Behalf of | Jun 23, 2023 | Business Bankruptcy

Business bankruptcy can be a way to recover from a rough few years or a changing marketplace that may require adjustments to a current business plan. Restructuring an organization and its debt can potentially reduce its operating expenses and help it become a more profitable, successful company. An organization may be able to eliminate certain debts and regain total control of operating expenses in the process.

Restructuring can be a varied process, depending on the type of business and what kinds of services or goods it offers. These are some of the most common changes made to organizations during the restructuring process.

Reducing the number of facilities a company operates

Perhaps the business is a chain restaurant or retail store operation that expanded rapidly for several years but no longer has the sales to justify so many locations. Maybe an organization produces products and attempted to run a flagship retail shop as a way to sell direct consumers instead of to retail businesses, only to have that concept turn into a massive loss for the business. Reducing the number of storefronts or eliminating some of the facilities operated by a business can help significantly reduce its monthly financial obligations.

Eliminating redundant staff

Staff reductions often directly relate to the elimination of certain locations, but even a business operated at a single facility may need to downsize somewhat during restructuring. Given that the staff members require not just wages and benefits but also business space and work amenities, the cost of eliminating some positions can make a major difference to the company’s operating budget.

Renegotiating and settling debts

Restructuring may involve selling off assets, like the equipment that helped the company operate locations that will soon close. Some of the proceeds from such sales could help repay certain creditors. Businesses typically need to reach out to creditors during restructuring if they want to preserve their relationship. They may be able to work out different terms that could bring the debt back into good standing, as creditors may have an incentive to cooperate to avoid the discharge of the debt. Other times, they may be able to close an account and settle a debt by making a partial payment using liquidation proceeds.

Not every business needs to approach restructuring in the same way, but letting workers go, changing/reducing business locations and reworking certain debts are common steps taken in many cases. Planning carefully when preparing to restructure a business during bankruptcy may help increase the chances that the business will rebound from the restructuring process and become solvent again.