To be successful in business over the long term, resilience and adaptability are critically important. Business managers/owners can face financial challenges for a variety of reasons, ranging from changing customer needs or demographics, obsolete processes/technology, new, aggressive competition, or economic downturns.
Businesses that ignore the warning signs or do not implement corrective actions on a proactive basis are much more likely to experience a material decline in the value of the business, which can happen quickly and even be very difficult, costly, or even impossible to turnaround.
Business managers/owners must continually take stock of their situation, including honestly evaluating the following:
- Can the business remain viable in its current structure?
- Is there a sufficient level of trust and comfort with lenders, suppliers, and other stakeholders to provide needed time and support?
- Is the problem temporary or permanent, and is it fixable?
- Does the business have the resources to see it through, and if not, can they be obtained?
If the evaluation reveals serious issues, the business’s survival may be in jeopardy, and a business restructuring should be considered. The objectives of a restructuring include:
- Ensuring the ongoing survival of the business
- Preserving the value of the business in the long term
- Maximizing recovery to owners from a windup or sale of the business, when appropriate
Depending on specific circumstances, the restructuring may be done informally by management, or it may require a more formal legal process. In either case, a successful restructuring needs to be properly planned to ensure the appropriate required internal and/or external resources are available, and steps can be efficiently implemented to support a successful outcome.
