How to Restructure a Small Business

Why do companies restructure?

There are usually two reasons for restructuring a company:

1. Financial distress (reactive process to resolve insolvency)
2. Business optimization (proactive process to enhance business performance)

And there are two main categories of business restructure:

1. Financial (and debt) reorganization
2. Organizational restructuring 
    

Company restructuring example

We can learn more about the different reasons businesses restructure by looking at a real-world example.

Google

A great example of a proactive corporate restructure is Google because it shows how an already successful business can opt to reorganize in the interests of achieving even greater capability. 

The restructure announcement came in 2015 based on the rationale that a company of distinct companies (Alphabet) could innovate faster than a single enormous entity (Google).

Two years after executing the new structure, some outcomes of the reorganization were revealed by the company. They included: 

• Greater transparency for investors
• Leaner, more efficient parent company
• Autonomy and a greater chance of success for subsidiaries 

So it worked out for Google. But how do you make sure it works out for your small business? Just follow these 6 steps.

How to restructure a small business: 6 steps

1. Conduct a strategic review

Often the hardest part in understanding how to restructure a small business is knowing how (and when) to begin. That’s where a strategic review comes in. 

Your strategic review should cover everything from capital and debt to operations, and give you a complete picture of where your business is at, and what opportunities and threats are in front of it.

2. Assess your business strategy 

Now you’ve conducted your strategic review, you should have a good idea of what’s really going on within your business. The next step is to overlay the current business strategy: does it align? 

Are you spending time and resources on activities that aren’t helping you to achieve your business goals? If so, they’re the first to be analyzed and reconsidered. Can they be downsized, merged or otherwise reconfigured?

3. Map out your potential restructure

This is when you get creative. What would the outcomes be if you closed a branch? What would happen if you merged this team with that team? Can you achieve any efficiencies with new business partnerships or hires? Take appropriate advice, consider all your options, and scenario-test the impact of each. 

4. Assemble a change team

It doesn’t matter how great your planning and scenario testing is, if your execution is poor, your business restructure will fail. So step 4 is to assemble a person or team of people responsible for making the restructure happen.

There are many change management frameworks out there and all of them advocate for a change team. 

5. Develop a communications plan

Part of what will determine the success or failure of your reorganization plan will be how (and when) it’s communicated to employees and stakeholders. Poor communication can lead to mass walk-outs, a drop in share price, and PR nightmares. 

Businesses can’t operate without employees so don’t keep them in the dark. Doing so will only lead to rumors and possibly resignations. If your small business restructure includes layoffs, your communication plan should include a reduction in force (RIF) letter. Remember, transparency is key. 

6. Roll out

Now you know how to restructure a small business. It’s time to put your plan into action. Remember that 70% of change initiatives fail so be methodical in your planning and execution.

Bear in mind that if your small business is in Australia, there are new provisions that allow you to negotiate with creditors and undertake debt restructure while continuing to trade. Learn more: Safe Harbour Insolvent Trading

Restructuring a department or team

The fundamental principles of restructuring a department are the same as reorganizing a business. However, taking into account the more intimate nature of a team as opposed to a business, it’s arguably more important to acknowledge and take workplace culture into consideration. 

Planning and executing your restructure in alignment with long-held values of the team will reduce resistance to change; as will recognizing and rewarding good behaviors, such as championing the change or adopting newly introduced processes.