Businesses sometimes begin struggling financially after years of success. Changes in the market can lead to abrupt and unanticipated financial challenges. Organizations can go from the black to the red in a matter of months when there are issues with customer demand, materials acquisition or staffing.
Sometimes, those running struggling companies have to make drastic changes to keep the company afloat. Restructuring, which often occurs as part of a business bankruptcy, may help a company reduce operating expenses. The restructuring process is a very involved one and typically changes the scope of the company. Successful restructuring can reduce operating expenses and help the company continue to meet its financial obligations.
There are two different, yet common, ways for businesses to approach the restructuring process.
Reducing locations
Often, successful companies expand by developing new premises. A successful pizza parlor may open up shops in multiple other towns after developing a local following at its flagship location. Those new shops can generate additional revenue, but they can also drastically increase monthly operational costs.
Businesses can sometimes drastically reduce their operating expenses and remain solvent by reducing the number of locations they operate or how many separate facilities they rent. Ending commercial leases, reducing staffing levels and focusing on the most successful locations could help a previously successful company overcome a temporary period of economic hardship.
Refocusing the company
Company growth sometimes means that businesses expand into a variety of services and goods. For example, a company may begin manufacturing its own components for the products that it makes or may go from offering a dozen items at restaurant locations to a menu with more than a hundred different food items.
Restructuring sometimes requires that businesses streamline daily operations and refocus on specific products or services. Sometimes, refocusing on what the company offered when it first started is the best approach. Other times, companies need to establish what offerings are the most lucrative and popular and prioritize those.
Either approach to restructuring would likely lead to massive changes to a company and could reduce the long-term financial strain on the business. Having a plan before beginning the restructuring process can increase the likelihood of success.