What is corporate restructuring?
Corporate restructuring is the process of reorganizing a corporation’s structure and operations. Reorganizations can be initiated by a variety of factors, including changes in ownership and market forces, changes in corporate policy, or by legal requirements imposed by bankruptcy law or other laws.
Corporate restructuring involves changing business processes in order to improve operations and profitability. Corporate restructuring projects can be undertaken internally or externally by an outside consultant. The goal of corporate restructuring is to reduce costs, increase efficiency and improve performance.
In some cases, corporate restructuring can also involve changing the legal structure of the company to reflect its new operating structure. It involves a number of steps and procedures that are designed to improve the efficiency of a company’s operations by streamlining its processes and removing waste.
Types of corporate restructuring
1. Financial Restructuring
Financial restructuring is also known as debt restructuring. This is done when a company is unable to pay its debts as per the terms and conditions of its lenders. A financial restructuring is done in order to reduce the interest burden on the company’s creditors and to increase the cash flow of the company so that it can continue operating without breakdown or liquidation.
Financial restructuring involves the conversion of debt into equity, or vice versa, with a view to improving the company’s financial health and its ability to generate cash flow. It can be carried out quickly, in about two weeks’ time, but it’s important that it’s done properly. If it’s not done properly you can end up with a bad reputation for many years to come. It could also include sale of assets, reduction in capital, or restructuring debt.
2. Organizational Restructuring
Organizational restructuring is also known as internal restructuring, which means that this type of restructuring involves changes within an organization rather than outside it. The main purpose of organizational restructuring is to improve operational efficiency within an organization so that it can generate more profit with lesser costs and fewer resources required for its operation. This essentially means transforming an organization from a set of people working together towards a common goal into one that is more effective, efficient and profitable. When a company experiences internal political turmoil or other problems that cause it to be dysfunctional, it may be time for a complete re-orgnization. This type of restructuring occurs when management has been unable to resolve issues within the organization and is not able to perform at an acceptable standard. In order to do this, there are three types of organizational restructuring strategies : downsizing, reengineering and total quality management (TQM).
Reasons for failure of corporate restructuring
There are many situations wherein corporate restructuring can fail:
An overvalued company is one that has been given an excessive stock price in relation to its earnings and other assets. The most common reason for this is the fact that investors and analysts do not understand the business, its product or its competitive position. This can lead to overvaluation because investors are buying shares on the basis of unrealistic expectations about future profits, which does not reflect reality. This is common in many industries. For instance, if you are executing import export business ideas then you would run into these problems of overvaluation fairly often because tracking and projections are difficult in import export businesses.
2. Organizational resistance
When a company faces serious problems, it may be reluctant to implement restructuring measures due to fears that they will have a negative impact on employees’ morale, who may feel insecure about their future prospects if they lose their jobs or are made redundant as part of a restructuring process