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Restructuring your way out of recession

Credit is hard to find and, with global recession looming, businesses face many new challenges. The solution is to develop sensible, cost effective and tax efficient restructuring plans.

Cash flow and business viability are key and should be uppermost in your mind when considering restructuring options and strategy. Falling turnover, pressure on margins and limited cash resources require a tightening of belts and a speedy withdrawal from those business ventures that have a long lead time to profitability, or otherwise drain the business of cash. Identifying such parts of the business is usually quite easy, but downsizing or eliminating them can be extremely challenging.

A good restructuring plan begins with an in-depth review of the business operations and an understanding of what drives costs, profits and cash flow. After analysing the business model and its structure you should consider the restructuring options available, taking into account relevant commercial and legal constraints effecting the business operations and its cash resource.

Restructuring a business is likely to involve the removal of financial burdens that may include the cost of premises, employees, unprofitable contracts, or loss-making subsidiary companies or operations. The legal mechanisms for dealing with these will be different in each case and may involve compromising debt through a company voluntary arrangement or via an administration, or even liquidation. The need for an insolvency process will depend upon whether the company, group or business requires protection from its creditors while a restructuring plan is put in place.

The main focus is to establish a restructuring plan that saves jobs, goodwill and business infrastructure, retaining value to the business wherever commercially and sensibly possible. Business restructuring can be painful, impacting upon the many stakeholders who have supported the business over the years, but this pain should be short-lived. Restructuring an operation into a viable, more streamlined and profitable business will provide opportunities for most of those stakeholders already involved; without restructuring they would get nothing.

None of this can you do alone. You need an adviser with experience and expertise in developing the most appropriate restructuring plan for a business facing either a need to downsize or financial distress. They will analyse and consider restructuring and refinancing options, with or without an insolvency process, introducing funders and investors where necessary.

When we at Mercer & Hole are asked to advise in these circumstances, we analyse with clients the requirements and consequences of a restructuring plan and endeavour to ensure that its implementation is as effective and painless as commercially possible.



Date: 17th October, 2008
Author: Steve Smith


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