What is Corporate Restructuring?

Corporate restructuring is a term we use when a corporation makes a significant structural change to the way it functions, either organizationally, operationally, financially, or all of the above.

Corporate restructuring can take place for a variety of reasons. Often, it happens as a result of a company facing challenges with financial pressures, debt, competitors on the rise, or new expectations from the marketplace. After having tried small things to cope with the demands, a company usually lands on restructuring as a way to make large-scale change.

However, there are also restructuring projects that don't arise under duress and can happen when a company simply wants to pivot or change with the times. These efforts are more likely to come from a shift in company vision or an opportunity for potential growth.

What forms can corporate restructuring take?

Corporate restructuring can take many forms because a company can be "restructured" in many ways.

Financial restructuring is one form. This is when an entity changes its capital structure, rebalancing its equity and debt to survive financial pressures from the environment or rising business costs.

Organizational restructuring involves shifting the parts or divisions of a company. For example, if costs need to be cut, two departments might merge into one to lower the need for office space or personnel.

Corporate restructuring could also mean merging with or acquiring other businesses. A statutory merger, for example, could take place when one company merges with another, and only one of those business entities continues. The resulting corporation is now benefitting from two sets of experiences, teams, and work processes.

Another merger might occur as part of a corporate restructuring. For example, a conglomerate might be formed between two companies from very different markets to expand both entities' audience and product range.

Oftentimes, restructuring efforts are a mixture of several of these merges. Some organizational changes are paired with financial consolidation and cutting back of overheads, or there could be a reshuffling of personnel and departments.

Whatever restructuring looks like, it always brings change, and this can cause a host of challenges for leaders and team members, especially if employees or departments are laid off, roles are shifted, or the mission of the company evolves in a major way.

What happens when restructuring is successful?

The goal of corporate restructuring is often to leave an organization in a more stable, prosperous state, better able to adapt to the challenges and opportunities of the environment and the market. To that end, a successful restructuring could look like a company with fewer overheads and fewer locations but more room to grow and more budget to spend on developing one project to capture a certain audience segment.

A real-world example of a restructuring project that succeeded in its goals is Tesla. In response to pressure from investors to free up cash and improve operational efficiency, CEO Elon Musk completely shifted its organizational structure, "flattening" its hierarchy of managers in order to gain quicker, more productive communication that could respond better to the needs of an innovative product line. Not only is Tesla thriving post-restructuring in terms of profitability but it has tracks to run on moving forward.

Corporate restructuring can be a bold but necessary move in the life of a company. Whether it comes out of a new opportunity in the market or a turn of events that causes increased financial pressure, restructuring can create a new version of a company — one that is better able to withstand the tests of time and take advantage of change. If you are thinking it may be time to restructure your company in some way, but aren't sure where to begin, contact us today

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