business turnaround restructuring

Turnaround vs. Restructuring: The Differences You Need To Know

What is a Turnaround and Restructuring?

Both a turnaround and restructure are as they sound, aimed at saving a business and making sure that it does not go under. How do businesses get to this point, and what exactly is done to rescue them?

Let’s start with the basics. Turnaround can be defined as a period of poor performance that moves into a period of financial recovery. This can refer to an individual or a nations economy as well. Turnarounds are an important and crucial time, as they mark a period of improvement that brings stability to an organization’s future.

To create a turnaround, an organization must identify problems, be ready to consider changes, and develop and put a problem-solving strategy into place.

On the other hand, restructuring is an action taken by a company to substantially modify the financial and operational aspect of the company, typically when the business is facing severe financial pressures and struggles. But there are several reasons why companies might restructure, including deteriorating financial fundamentals, poor earnings performance, low revenue, excessive debt, and the company is no longer competitive, or too much competition exists in the industry.

This is a corporate action taken that involves modifying the debt, operations, or structure of a company as a way of preventing and limiting financial harm to ultimately improve the business. The end goal is to avoid liquidation. Turnaround and restructuring have two things in common: stabilize the business and allow it to grow and be successful.

How A Business Turnaround Works

After problems within a company are identified, and effective decisions have been made to provide a framework for business decision making to solidify goal prioritization, and resource allocation in business environments, a turnaround financial consultant will assess the degree of distress. This is done through a thorough review of the entire company. The areas that need the most attention will be assessed first, and a strategy will be agreed on.

Depending on the size of the business, the complexity of the problems, and how much help the business wants from the consultant, an engagement may last two to three years.

There are specific characteristics that will identify an organization in need of a turnaround. This might include declines in the price of its stock, the need to lay off employees, and revenues that do not cover requirements to pay creditors.

Changes in a firm’s competitive advantage and outdated products or service may also be indicative of a business that needs to investigate both turnaround and restructure strategies.

Example of a Turnaround:

“In 2009, General Motors (GM) declared bankruptcy as a result of the crisis, and its stock was delisted from trading. Bailout funds and its bankruptcy helped the company restore its manufacturing production and sales. In 2010, after a complete reorganization, GM’s stock began trading again with increased production and sales.”- Investopedia

How Business Restructuring Works

Business restructuring begins with a review of the company’s capital structure and balance sheet to assess the relevance and size of the financing.  It will also allow look at the economic value of the business and how the capital is used within them.

Sometimes a restructure involves looking at a better finance option or closing a certain source of funding. In other cases that are more extreme, this could include putting forward a deed of company arrangement to creditors with a plan of restructure.

Example of Restructuring: 

Savers Inc: “In late March 2019, Savers Inc. the largest for-profit thrift store chain in the United States reached a restructuring agreement that cut its debt load by 40% and saw it taken over by Ares Management Corp. and Crescent Capital Group LP, Bloomberg reported.

The out-of-court restructuring, which was approved by the company’s board of directors, includes refinancing a $700 million first-lien loan and lowering the retailer’s interest costs. Under the deal, the company’s existing term loan holders get paid in full, while senior noteholders swapped their debt for equity.”- Investopedia

How Our Turnaround and Restructuring Consultants Can Help

-Crisis Management

-Bankruptcy reporting and administration

-Strategic alternatives and business planning

-Operational improvements

-Debt capital advisory

-Stakeholder communication

M&A advisory

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