Spotting the signs: restructure your business for a secure future
29 September 2013
Phil Emmerson of business advisory firm BDO answers frequently asked questions about restructuring and turnaround.
The past six years have been busy for restructuring advisers, whose behind-the-scenes expertise in rescuing and reviving businesses has been in constant demand since the financial crisis. Today, if a company can be saved, then all reasonable attempts to do this should be explored, with consensual routes to recovery often proving the most successful. In this “new normal” of fluctuating economic conditions, formal insolvency processes are increasingly seen either as a last resort or as a means of delivering an agreed solution, where shareholders and management, rather than lenders, drive the process, having recognised the need to restructure and instigate change.
As the UK economy bounces back, an increasing number of companies will face challenges – perhaps because their working capital requirements change as they try to expand too quickly or aggressively into the recovery, or simply because they need to adapt to the demands of the changed marketplace.
How do I know if my business needs to restructure?
The circumstances of individual businesses are unique, but tend to show similar symptoms if they are in difficulty or if they need to restructure.
The immediate trigger for a restructuring is often an event that overwhelms the ability of the business to cope in the short term – for example, the sudden loss of a key client or the introduction of new payment terms from a key customer. This often highlights more underlying issues, which might include pressure on gross margin, increasing costs or inefficient processes. These situations develop very quickly.
Two things normally happen next. Management may not have experience of dealing with a crisis or managing the stakeholders in their business through this process and therefore will find it difficult to adapt to new circumstances.
Secondly, the problem will start to impact on cash availability in the business, which in turn can place strain on a company’s relationship with its bank or lender. Banks and lenders rarely cause problems – they react to them. Breaching banking agreements is a key warning sign that a business is experiencing stress and may need to restructure.
That sounds familiar. So what needs to be done?
Though the problems may be obvious, it’s a courageous step to admit that your company needs help. If these symptoms sound familiar, it’s important to take action promptly before the company is damaged beyond repair. Early intervention will increase the range of options available and is likely to deliver better outcomes for management, employees and shareholders than leaving it too late. Involving a restructuring specialist early on will help to preserve jobs, assets and shareholder value.
What qualities should my restructuring adviser have?
Just as someone would seek out the best and most experienced doctor to diagnose and treat a serious illness, choosing the best specialist restructuring adviser for a business is vital. As events will often move quickly, there is normally only one chance to get this right.
There are many advisers in this space, dealing with some of the world’s largest and most complex businesses down to the smallest. Their approaches and expertise may vary widely, so it is important to know whether your adviser has experience dealing with similar types of situations to those your company is experiencing. Previous sector experience may be less important than having extensive situational experience. Successful restructuring assignments will draw on a wide range of skills, so having ready access to these is essential.
When considering your options, take soundings from advisers, preferably professionals who already know the company well – such as solicitors or accountants – and will be in a position to make helpful suggestions. Advisers should be well networked with the banking and lending communities, and can help business owners to diagnose, identify and resolve the major issues swiftly.
BDO has access to expert professionals in a number of specialist areas and can assemble the right restructuring advisory team to meet the businesses’ specific needs.
While financial acumen is essential, the best restructuring advisers also have exceptional communication skills. Communication is often the critical factor in the success or failure of a restructuring process. They will be able to identify and work constructively with all areas of a business as well as its stakeholders – ranging from HMRC and pension funds to trade unions – to provide the best chance of a successful outcome, restoring confidence in the business and providing a base to restore shareholder value.
Will a restructuring adviser help to resolve an issue with my company’s bank or lender?
Restructuring advisers recognise the importance of the funder’s position and will be able to present your company’s case to your bank or lender in the best possible light. This can often have a swift and positive effect by itself.
An effective restructuring adviser will help diagnose the issues, understand the options and can help expedite or resolve a firm’s financial issues, communicating these to stakeholders, including the bank.
Sometimes existing funding arrangements are not appropriate, or the banking relationship has run its course, in which case your restructuring adviser can help find alternative financing for
the business. There are now hundreds of funds and alternative lenders in the market, all with different appetites for risk, structure and sector specialisms. Many of these will not be known outside the financial services community, but could hold the key to a company’s recovery. Your restructuring adviser should be well networked in these communities and be able to find the right match for your business quickly.
Provided advice is sought early enough, business rescue and turnaround options are possible for almost all businesses, if the core proposition is strong and the right support is found.
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