The economic uncertainty we have all been living under since 2008 has, in many cases, become the new normal – but in order to attract new investment and opportunities and position for growth, the time is now right for businesses to be positive, to look to the future and restructure.
The benefits of restructuring are wide ranging and include achieving cash flow efficiencies through reducing the cost base while creating more efficient and leaner structures, effective processes and engaged staff. It involves looking at reorganising legal ownership, operational and other structures to make a business more profitable and better organised for its needs. An effective restructure will result in a leaner, better organised company, focussed on its core business activities, with revised strategic and financial planning in place.
It is clear that restructured businesses are much more likely to be viewed as sensible targets for banks increasing their lending activity and venture capitalists looking to invest.
Businesses should therefore urgently look at restructuring to build a platform for future success. Capital is scarce and deployed on a much more risk averse basis. So the difficult task of securing new finance and investment can become insurmountable without a carefully considered funding proposition.
Restructuring and reorganisation is integral to the processes which banks and investors undertake in evaluating opportunities. This is much more than simply the manner in which presentation of an opportunity to invest takes place. Banks and investors will dig much deeper to consider what is going on at operational levels and ask pertinent questions such as does management have a credible business plan and do they believe that they have the skills, experience and drive to deliver upon it?
The “new normal” is really a continuation of banks being very choosy about which businesses to lend money to and businesses being less willing to borrow money to fund expansion projects – because of the ongoing market uncertainty. The Government has been indecisive over the corporate recovery programme it wants and the perceived increase in formal insolvencies has not occurred.
There is much talk of ‘Zombie Businesses.’ These are companies that in more prosperous times would have been wound up by creditors or the banks. However, banks keep them in business (as asset values would not generate a full recovery otherwise) to claw back loan repayments. Had these companies ceased trading the banks would have received a smaller percentage of their loans, whereas keeping them going, even on an unprofitable basis, means the banks should get more of their money back – albeit over a longer period of time.
There have been recent signs of economic stability but the economy will only progress and prosper if businesses which have weathered the storm choose to look forward and prepare themselves for greater and better things.
Businesses should now look at their balance sheet and decide upon the necessity to restructure to achieve their aspirations. The outcome of a successfully delivered restructure is an entirely positive process.
Discuss your strategy with Andrew on 0191 211 7957 or email [email protected].