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Choosing which facilities to retain when restructuring

On Behalf of | May 23, 2024 | Business Restructuring & Insolvency

Restructuring can pull a business back from the edge of insolvency and help optimize the company’s operations. Restructuring is often necessary after a period of rapid growth or when there have been shifts in the domestic market.

Successful restructuring typically entails making substantial changes to a company’s daily operations, its facilities and its staffing. Each of those adjustments requires careful consideration and appropriate execution. Particularly when a company has expanded and is no longer profitable, shutting down certain facilities or locations is often a key element of successfully restructuring.

What factors should guide the decisions about what facilities a company retains and which ones it closes or liquidates when restructuring?

Independent facility performance

The overall sales or productivity reported by one facility can influence what the leadership of the organization decides to do with that location when restructuring. A location that sees heavy foot traffic and high sales is likely a good location to keep open in most cases. Facilities that have struggled to gain a toehold or that operate in the red may be locations that the organization wants to close or repurpose.

Property value and rental terms

Property acquired for commercial purposes could be an asset that the company could liquidate to resolve financial obligations. On the other hand, property owned in neighborhoods seeing a local renaissance might be more valuable if the company retains it for several more years. Rental terms can also factor into the decisions about which facilities companies continue to operate and which ones they close. Commercial leases are often very long agreements, and a business might still be responsible for paying rent for several years at a low-performing location even if it closes that facility down.

Talents at the facility

Workers at a business with multiple locations typically only work at one location. Therefore, a review of the talent at each facility is an important step when making determinations about what locations to close and which ones to keep operational. In some cases, management may be able to transfer the best performers to other facilities, but transfers are not always successful. Retaining the best talent at the organization can influence decisions about which locations receive investment and which ones are up for liquidation.

Looking at short-term expenses and long-term company needs can help guide decisions about facilities during restructuring efforts. Executives and owners who prioritize the right concerns can make the most effective decisions on behalf of a struggling business.