2021: Is it still time to Transition and Restructure
During my 20 years of financial experience, I’ve seen and been a part of a number of restructuring frameworks. What I have found is that some worked, and some did not, and many companies do not know when it was time to change but instead reacted to a shift in their market (E.g., Currency movements, Covid, Market forces) Restructuring or transition can mean different things in stakeholders minds in growing profitability, reducing costs, reducing manpower and becoming a leaner business unit.
What is Transition and restructuring?
Business Transition is when you change internal operations processes and frameworks, positioning in the marketplace, restructure debt, modify your operations and work towards becoming a more profitable and cash flow positive business. There are several reasons why companies undergo restructuring. Usually, they are feeling a financial pinch. Whenever you see external or internal factors affecting your cash flow and financial performance, you need to take a hard look at them and do not wait to make changes.
Telling signs that it is time for review
1. Trends Are Not Looking Good
If you have dashboards in place and financial reports that allow you to track trends such as your trailing twelve months margins, ratios and a 13 week cash flow forecast in addition to an annual budget. If these tools are painting a picture that your business is not performing, then corrective action should take place sooner than later. If after your corrective actions, the trends are still negative, then you may consider a broader restructuring of your business.
2. Working Capital
The cost of money at present is cheap. Banks, asset-based lenders, and investors are all looking to place money to work. With low interest rates and excess liquidity, companies have had access to cash in the form of debt. Debt is not all that bad if it is managed wisely and you do not exceed the amount of debt that your balance sheet can handle.
Cash reserve Cover ratio’s and debt levels will depend on your business and awareness and this is a key conversation with investors and banks when looking at the next acquisition.
3. Changing Markets
4. Environmental & Technology
The world has become smarter about taking care of our environment. Finance technology is helping us do this more and more efficiently. The finance technology environment can also bring major changes.
5. Regulatory Environment
Every year, there are more and more regulations changing how the business world operates.
Protect Your Business Value and get in front of the curve.
Most of our mutual clients have been through this process during 2020 and as a result, many are now looking to exploit the opportunities, post recovery, to expand their markets to help drive their businesses forward in 2021.
I am keen to help businesses meet their strategic objectives.
To have a conversation about getting your business in the best shape for 2021, PM contact or call me on 0404 310 347. Additionally talk with CFO on Call a group of like minded Business Advisors on transformation and transition in Business.
CFO On Call by CAD Partners Pty Ltd
P: 1300 36 24 36
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3yAgree Brendan. In my travels, I used a process to identify restructuring to shutdown, happy to share. Key is also to identify the five key areas. Strategy, Structure, People and Skills, Systems and overall Culture.