A sound (re)structure

There comes a time over the course of a business when it may need to be restructured. Even strong businesses aren’t exempt, as some areas may be underperforming while others may require investment if they are to meet their potential. This process can be daunting and often means closing parts of the business and job losses, although the ultimate objective is to preserve the business, and as many jobs as possible. For most instances of restructuring, it involves refinancing the business. For businesses that might be facing a restructure, where can they find finance?

Restructuring

There are many reasons why a business may need to restructure, says Ken Tyrrell, business restructuring partner, PwC. “Some of the more common reasons are an external market shock, competition, an unexpected change in regulation or legislation, overtrading, acquisitions not performing or a fundamental change in market demand. Companies don’t always necessarily engage in restructuring under duress. It can also happen while preparing for a sale, merger, transfer of ownership or a strategic redirection.”

What does it involve?

“While all vary on a case-to-case basis, a restructuring process will generally involve cashflow forecasting, working capital management, rapid cost reduction, developing and executing restructuring plans,” says Tyrell. “Complex stakeholder management and communication planning is an integral part of any successful restructuring process. For complex restructurings, companies may seek to engage a turnaround manager or chief restructuring officer [CRO] to oversee the restructuring process.”

Financial restructuring

When a business owner is looking to engage in restructuring activity, they are also extremely anxious to keep the level of borrowed money to a minimum, says Stephen McCarthy, head of business development, Bibby Financial Services Ireland. They simply don’t want to take on term debt or cashflow loans that will result in monthly repayments for years to come.

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“When considering restructuring, there is a range of alternative finance sources that businesses can consider, depending on their requirements, including invoice finance, grants, fintech, venture capital, angel investors, peer-to-peer lending and crowdfunding. Obviously, the best solution for the business could even be a mix of these options, such as a short-term term loan with a traditional bank combined with some investment and an invoice finance facility.”

Financial restructuring essentially involves putting a debt and equity structure in place that supports a business’s restructuring plan, meets all liabilities as they fall due and supports any new strategic initiatives, says Tyrrell. “It will generally involve stakeholder management with external parties such as lenders and, potentially, shareholders. If there is a crisis element to the financial restructuring, this is typically when companies will seek to look at formal restructuring options such as schemes of arrangement, examinership and other formal insolvency procedures.”

Starting the process

One of the first things to try to understand is to what extent either financial restructuring (balance sheet) and/or operational restructuring (profit and loss) is required given the issues facing the business, says Tyrrell. “Once that is understood, it helps focus the attention on the key areas in the development of a restructuring plan.

“A business will need to clearly show that taking on additional debt in the short term will actually be beneficial for the business over the coming years. For example, it may allow funding the closure of a business unit which was loss-making but will ultimately improve the profitability of the business.”

To do this, a comprehensive business/restructuring plan with supporting cashflow forecasts will be the fundamental document to share with a lender, Tyrrell says. “Similarly, if a business needs to refinance from an existing lender, this information will be needed to support any discussions seeking funding from potential new lenders.”