Key considerations when your business needs financial restructuring

9th Sep 2021
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Business failures are not always synonymous with financial restructuring and shouldn't necessarily have to be judged on those terms. It can rather be viewed as a proactive approach, used to eliminate a problem before it escalates or reinforce the resiliency of an organization in the midst of financial shifts. For example, a merger or plans for expansion can also lead to this.

What is financial restructuring?

It’s a process that’s designed to limit financial harm to your business when it hits an obstacle in the road. Broadly speaking, it involves reorganising a business’s assets and liabilities. In this case, we are looking at how financial restructuring can be complemented with software and structural implementations.

It’s usually (although not always) something that is done in response to having debts you can’t cope with or running costs that can’t be sustained, common in manufacturing. In these instances, failing to carry out the restructuring can end up with the business falling over.

All businesses have assets that they own and that have value, as well as liabilities (usually in the form of debt). Together, the assets and liabilities play a key role in determining the success or failure of the business, and this is what financial restructuring is all about - managing the assets and reducing the liabilities.

Why do businesses choose financial restructuring?

Whether it’s fluctuations in the market, disrupters entering the sector, an unforeseen change in customer demand or the arrival of new technology, there are plenty of reasons why you might find yourself having to carry out a restructure.

Although financial restructuring is often carried out in a bid to avoid business failure, it can happen for other reasons too. For example, the business may undergo such a change in anticipation of a merger or buyout to attract prospective suitors, or to help investors gauge the strength of the business.

How do I plan for financial restructuring?

Don’t panic if you find yourself having to complete a financial restructuring process. Many businesses will do this as part of their strategy.

You should take a logical, methodical approach, and take one step at a time.

  • Assess your situation
  • Rethink your goals
  • Communicate
  • Renegotiate your debt
  • Review your operational processes (software, comms, HR and other components)      

Assess your situation

Define where you want to take the business, rather than just shaking everything up and hoping for the best. You might not need to overhaul your entire business model - perhaps just software and processes.

Combine your own internal viewpoint with that of a professional third party who has experience of restructuring but who can also take a hard look at everything about the business without being swayed by any emotional bias that you might have.

Rethink your goals

Be prepared to be flexible. If all your goals had been achievable without the need for restructuring, the chances are that you wouldn’t be considering this in the first place.

If your original aim was to sell the business in, let’s say, five years, accept that you might have to change that timeline. If you are planning to grow the business as a result of a positive market shift, business acquisition or need for process change.

As you restructure your business, you’ll need to restructure your goals, too.


The outcome of your restructuring process might be a smaller business or a change in management structure. It could be the implementation of new software, HR systems, tracking and eCommerce, but if you are being forced to restructure then debt-holders might have to write off some of what they are owed.

It’s important to communicate throughout the process – both because it’s the decent thing to do, and because you are likely to need the other stakeholders to make a success of the restructured business once this process is over.

Be honest with them all, even if it means having to share bad news with them.

Talk to your suppliers, too. If there is any that are owed money you can’t pay, let them know about your plans.

Again, be honest. If at the end of the process you’ve lost the trust of the supply chain that you need in order to operate, you’ll be facing a big problem.

Renegotiate your debt

There are various options available when it comes to debt restructuring, but some that seem most attractive might end up being particularly restrictive.

And some who promise quick solutions can actually leave you further in debt, thanks to the fees they charge on contracts that you can’t get out of.

Often, the best thing you can do is speak to your existing secured lenders. For starters, you’ll already have a relationship with them and you can cut through much of the “getting to know you” stage that can be necessary with new lenders.

Don’t promise them what you can’t deliver, but they’ll know that it’s in their interest for you to come out the other side successfully. Whether they agree to reduce the debt, freeze interest or extend the time you have to repay what you owe, it’s to everyone’s benefit if you can come to a mutually satisfactory agreement.

Review your operational processes

Sorting out your cash flow and debts can help, but often the reasons for these issues in the first place can be traced back to problems at an operational level. Common problems include; an inability to adopt digital transformation and lack of internal investment caused by shortfalls

Every business is different so try to identify what these issues are. Again, an outsider looking at things with a fresh perspective could help you with this.

It could be down to poor or wasteful marketing, supply-chain issues, stock management or something else. Or it could be as simple as relying on spreadsheets and not using up-to-date accounting technology. Pinpointing where there’s an issue is crucial at this stage.

One way to focus the mind is to ask yourself if there are any factors that would raise a red flag if you were looking to buy this business from someone else.

Understand the risks

Although financial restructuring can help you reset your business and move on positively towards the next stage in its cycle, it’s important to bear in mind the downsides.

Tough decisions might have to be made about the future of some of your employees. Other parties in your supply chain might initially be wary of your new-look business – they might take the view that it’s once bitten, twice shy.

Meanwhile, if your lenders have had to take a hit as part of your restructuring, you can expect the cost of finance to be higher, at least in the short term.

None of this necessarily means restructuring isn’t the right way to go, but you will need to carefully weigh up all the pros and cons first.


Financial restructuring is a common occurrence in the world of business, and many organisations have successfully completed them. At Advanced our Cloud accounting solution, and our Cloud-based business management software, will help you to identify business trends and forecast vulnerabilities. This, in turn, allows you to fend off the need for company-wide restructuring, saving you many of the challenges outlined in this article.