Introduction to Corporate Restructuring
Corporate Restructuring is a process of reorganizing the management and ownership structure of an enterprise in order to facilitate a change in the way it is operated. The primary purpose of corporate restructuring is to improve the performance and value creation potential of the company. It can be done by changing its organizational structure, business strategy, or by implementing changes in management practices.
It is important for all organizations to consider restructuring their business if they want to remain relevant in the market.
Benefits of Corporate Restructuring
Corporate restructuring assists the business houses to thrive for better profit, position and performance. Some of the benefits of corporate restructuring are:
More Financing Options By Restructuring
One of the benefits of restructuring is that it can help companies access more financing options, especially debt financing. Companies may do this by reorganizing their capital structure in order to increase equity value or issuing preferred shares or common stock with warrants. A company could also consider the option of private placements, which is the sale of company securities to a select group of investors. The increase in financing options afterward can help the company find additional sources for cash-flow and potentially even lead to an IPO.
Better Financial Performance
Companies that voluntarily undergo restructuring may see better financial performance. This is because when companies restructure, they are able to become more efficient by reallocating resources in order to cut costs and improve their overall financial performance. When a company restructures, it can also improve the quality of its earnings.
Increased Profit Margins
Companies that undergo restructuring may see an increase in their profit margins as a result of the process. One way this is achieved is by cutting unnecessary expenses while increasing revenue through enhanced sales or greater innovation, both factors that can contribute to enhanced profit margins.
Liquidity refers to the ability of a company to repay its debt, fund its operations, and make payments to shareholders on time and in full. Companies that undergo restructuring often see an increase in liquidity as a result of the process. This is because restructuring allows for organizations that were not very liquid before the process to become more liquid.
The process of restructuring can reduce the risk associated with a company’s operations by decreasing the likelihood of errors, mismanagement, and strategic mistakes. An organization that undergoes restructuring may see an increase in their risk-adjusted returns as a result of the process.
When a company undergoes reorganization, it may be able to purify its operations and improve the quality of its products or services. Restructuring efforts to improve in business functions, from top to bottom.