SMEs – Do you need to Restructure?
Restructuring
Unfortunately, many companies are facing challenging trading conditions which result in reduced profits, losses or even a threat to the very survival of the business. This demands urgent action by the management team. Many companies respond with a reduction in staff numbers and assume that this will solve the problem. However, what is required is a full restructuring of the business. The first step is a complete forensic examination of every aspect of the company to identify the problems and this will include customers, products, processes, procurement, overheads and unfortunately staff numbers. The CEO should evaluate whether the expertise to complete this task is available within the business or if an outside expert is preferable. An outside expert will bring fresh eyes and a new voice and will help to avoid groupthink.
Financial Information
The restructuring plan must be based on accurate and detailed financial information.
Management should prepare management accounts, product or services costings, detailed customer analysis and a staff review by function. It is useful to compare this data with figures from a previous period when the business was trading well. From this information the management team can identify areas where action needs to be taken. The team must identify the total amount of additional revenue or cost savings required to bring the business back to trading profitably. This figure is the minimum which must be achieved and is non-negotiable.
The plan and revised budget should be prepared to achieve this figure.
Customers
The customer base should be reviewed to establish margin per account allowing for all direct costs and including other related costs such as diversity of products or services which effect efficiency.
Business often view certain customers as essential because of size or loyalty, but if the customer does not deliver a margin, action needs to be taken to avoid the busy fool syndrome.
Suppliers
In most businesses suppliers are a major cost. Review each supplier, getting competitive quotes where possible and ensure that products and services supplied are on time and to specification and do not add to process costs.
Efficiency
Review production or service costs against industry standards to ensure the operation is efficient, a thorough review of operations will usually result in cost savings.
Overheads
Challenge all overhead costs by asking do we need to spend this money, can we do it cheaper. A good method to ensure minimum overheads is to prepare a zero-cost budget which means building the figures from scratch and not using present costs adjusted by a percentage as many businesses do.
Staff
Staff are a major cost for any business and staff reduction will automatically reduce cost. This is an arduous process for any business and should be driven by the CEO as department managers will be protective of their staff and usually believe that cuts should be somewhere else. This will prove to be the most difficult part of the process, but it is essential, or all jobs will be lost if the business fails.
Summary
A successful restructuring will revitalise the business and provide a sound base to grow into a successful and sustainable company. It is vital to get the buy-in of the management team for the process to succeed and to keep the staff fully informed as to the reasons and necessity of the restructuring. It is important to complete the restructuring process as soon as practicable as otherwise it will have a debilitating effect on the business and its staff.
Contact Us
We have restructured businesses with significant success. Contact us to discuss your concerns and how we can support you. info@walshemanagementconsultants.ie