Restructuring: 7 tips for restoring business profitability
A rapid market shift, disruptive technology, a more challenging performance target, unpredictable regulatory changes...several situations can affect the profitability of your business.
A reorganization can get your business back on track, but it's important to take the appropriate steps and have support in the process. Follow these tips to get your thinking off on the right foot.
1. Have a clear view of the situation
The biggest mistake you can make when growth is declining is being in denial. While the prospect of having to restructure is often hard to accept—even though it's a way to adapt your business to a new reality—it's important to face the facts.
"It's often the hardest thing to do, but you'll need to take a step back to analyze the situation as it is," explains René C. Leduc, Vice President, Business Restructuring Unit at BDC. "The longer you wait, the more significant the measures you'll need to take will be, and the harder they will be to implement." Acting fast will increase your chances of bouncing back quickly.
2. Get outside help
Asking an expert for advice will help you set up an action plan for restructuring.
"In family businesses, managers often say that they have seen this before and will be able to pull through it again. Carrying out a restructuring does not require the same skills as developing a business. Outside assistance can help you navigate the change. In some cases, it may even be better to task a new manager with making the necessary decisions," advises Mr. Leduc, who directs a team of business advisors who support entrepreneurs in business restructuring.
3. Don't avoid necessary changes
You will have decisions to make, and some will be harder to implement than others. Selling assets, cutting staff, reviewing the business plan...changes are necessary.
"The status quo is not an option," says Mr. Leduc.
Restructuring a business is not a simple matter of cutting costs. It is also adapting how the business operates to new market demands. You will need to retain the skills that are critical to the new vision.
"Sometimes you have to prioritize certain employees who are adept at navigating a new environment to the detriment of other employees who, despite their experience, will be less capable of adapting to the changes," adds Mr. Leduc.
4. Be transparent with your banker
This is not the time to change financial institutions, which is a common impulse when the bottom line is suffering.
"Instead, you must show your banker that you have a solid restructuring plan, that you have strong support and that you are capable of making decisions," explains René C. Leduc. "The expert you hired will be able to help you with this delicate but essential task."
Remember, a lack of communication is often perceived negatively and can undermine your banker's trust when you need it most.
5. Plan rigorous monitoring
Executing a restructuring plan requires regular monitoring to measure real progress.
The results, both operational and financial, must be analyzed on at least a monthly basis. "This will make it possible to correct shortcomings immediately to prevent the situation from getting worse," says Mr. Leduc.
6. Make your suppliers your allies
Another mistake to be avoided is not informing your main suppliers about your situation. Instead, you need to develop even stronger relationships with them.
"The situation demands that you be proactive in maintaining good communication. They will be stakeholders in the restructuring plan because payment agreements will have to be negotiated. Keeping them informed of the game plan is essential," explains Mr. Leduc.
7. Anticipate new investments
Once the situation starts to improve, it will be time to consider investments to make your business more successful. "Often, the source of the problems is taking too long to achieve productivity and innovation. This makes you less competitive," says René C. Leduc. Innovation cycles are becoming shorter. "Today's managers have to keep abreast of changes in their industry to avoid falling behind."
No business, regardless of its size, is immune to a crisis. You shouldn't see this as a failure, but rather a realignment with your market. Getting back on track will take determination, and especially, resilience. "Depending on the extent of the problems, it can take about 24 months to stabilize the situation and regain profitability," concludes Mr. Leduc.