Author
Domenic CalabrettaChief Executive Officer & ASIC Registered Liquidator
Hundreds of Aussie companies collapse every year, and most businesses end up in liquidation rather than returning to trading. With disruptive forces like technology and competitive market conditions, companies can find themselves in financial trouble very quickly.
So what are the signs you need to bring in the restructuring experts to bring your company back from the brink? If you can recognise these top signs, you can act quickly to seek expert advice. This will give your business the best chance of staying afloat and trading while you work your way back to a healthy balance sheet.
1. Poor competitiveness
One of the most obvious signs your company is in need of a restructuring process is you’re being beaten by your competitors. You’re no longer number one or two in your industry, and the other market players are crushing your prices and surpassing you in everything from customer service to product quality.
Poor competitiveness is an opportunity to rethink everything from your business model to organisational structure so your business can start ascending rather than falling behind your competitors.
2. Growth is stagnating
If you want to expand your business but you’re finding it impossible to achieve growth, it’s a sign your business could be due for a corporate restructuring. Your business might be maintaining a decent market share and enjoying a decent profit margin, but you can’t seem to expand and scale up in the way you want.
Restructuring can help you uncover efficiencies and allow you to leverage the resources – from product and brand name to your team – you need to scale up and become a dominant player.
3. Dramatic revenue drop
Poor financial metrics are an obvious warning sign your business needs a restructure. Declining revenue can be a key indicator your business is no longer profitably structured. An abrupt, unexpected decline in revenue can set up a chain of events and cause non-payment of debt, tax, and even employee wages.
A restructuring process can identify the causes and address them, helping you first break even and then return to profitability.
4. Cash-flow shortages
If cash-flow shortages are a regular occurrence in your business, it’s time to look at restructuring. Your sales could be going up and you might be enjoying profitability, but the business is failing to collect revenue or has poor working capital.
Poor cash flow can threaten solvency, affect credit ratings with suppliers, compromise competitive advantage, and drag down your operations. A company restructure is the best way to address a cash-flow-poor business.
5. Lacking responsiveness
Beyond your financial metrics is dynamism and responsiveness. Poor management decision-making and ineffective internal communication with employees can lead to slow or failed attempts at responsive action. Your business might recognise there’s a need for change, but your managers/staff lack the initiative to execute the large-scale changes you need. This can set off a vicious cycle where your high performers leave the organisation in frustration.
You can tackle manager and employee aversion to make drastic change by bringing in restructuring experts who can lead you business out of the danger zone and back to profitability in the most efficient and effective way.
6. Runaway expenses
Runaway expenses are a top indicator that your business is in trouble. If you’re spending more than you make, you can be both cash-flow constrained and unprofitable. From there, it’s only a matter of time before you’re unable to pay suppliers, creditors, and other partners.
Restructuring can identify your unnecessary expenses, cut out excessive costs, and return you to profitability.
7. Debt dependence
Businesses heavily dependent on debt are burdened by the servicing of their borrowings. In turn, this restrains growth, cash flow, and ability to invest in sources of competitive advantage like product research and development.
With a business restructure, you can formulate a new strategy to pay back your debt while freeing up a good amount of profits to put back into growing the business.
8. Poor efficiency
Poor efficiency can be rooted in your business structure or the design of your operations. Whether it’s in your costs, operations, structure – or all three areas – roadblocks to efficiency can be identified with a restructure process and allow your business to reach its true potential.
Inefficiency can also have its origins in human resources and processes, and you end up having to hire more people without realising any efficiency gains. In this case, restructuring could also help you identify processes to streamline your operations, minimise the need to hire new staff, and continue to grow as an efficient business.
9. Shifting customer base
Whether your customer base is diminishing, buying less or just looking for another product or service, a reduced customer base means your business could be ripe for restructuring. You might need to find a way to reduce the costs of production, introduce new product or service lines, or explore other revenue models for the same product, such as licensing or subscriptions.
Restructuring could help you find new ways to deliver the same for less, shift into a new complementary product line, or otherwise meet your customer base where they’re going.
10. Sales decline
A decline in sales volume is the clearest sign you could benefit from restructuring your organisation. Dropping sales (after accounting for seasonal and other expected variations) suggests your business could be at risk of insolvency and you may need to rethink how you’re doing things. A review of your operations and the market can help you identify the cause, and it could be your organisational structure that needs to change. In this situation, move quickly, seek advice, and implement the necessary changes to stay ahead of market and customer trends.
Keeping a watchful eye on your business allows you to act quickly when you need to. With a business restructure, a business on the brink can have the chance to restrategise and return to profitability. You can also identify any financial weaknesses and implement changes to have your operations thriving again. With restructuring comes the potential for a new start, so make sure you have the right experts to help you along the way.
Mackay Goodwin is a leading advisory firm specialising in corporate recovery, turnaround and restructuring. To find out more about how we can help your business through the corporate restructuring process, explore our website for more information about our services or contact us directly today.
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