Try Restructuring Before Insolvency


For many struggling businesses, considering insolvency is tempting as a way to move on from all your stresses and difficulties. 

Restructuring can be an effective way for small to medium-sized businesses to overcome financial difficulties. Restructuring can help you get back on track and avoid insolvency with the proper support and advice.

Restructuring a business involves reorganising its financial and operational structure to improve performance, profitability and competitiveness. 

You are reinforcing the foundation of the business and implementing support beams for the stability of future growth.

This can include business registration changes, operation flows, management, and finances. Restructuring can help a struggling business by reducing costs, improving efficiency, and restoring financial performance to optimal profitability.

In contrast, insolvency is the legal process of winding up a business that cannot pay its debts. While insolvency can end the company’s financial troubles, it can also result in a loss of reputation, closure of the business, and personal financial losses for the owner.

Benefits of restructuring before insolvency

While insolvency may seem the best option for SMEs facing bankruptcy or financial hardship, restructuring provides many benefits that may result in a better outcome for the business owner.

Maintain control

One of the primary benefits of restructuring a business is that it allows the owner to maintain control of the company. 

Insolvency typically involves handing over control to an insolvency practitioner responsible for managing the process. This can be a harrowing experience for business owners, who may feel they have lost control of their company. 

In contrast, restructuring allows the business owner to work closely with their team and advisors to find the best solution for the business and their situation. This may even spark new energy for the owner and shareholders.

Improving cash flow

Improving cash flow is often a key objective of restructuring a business. By reorganising the company’s financial and operational structure, businesses can reduce costs and increase efficiency, which helps improve their cash flow. 

For example, restructuring can involve negotiating better payment terms with suppliers, reducing the cost of goods sold, or streamlining processes to increase productivity. 

Restructuring can help businesses acquire new funding or refinance existing debt. This injection of cash can significantly improve the company’s financial position. 

By improving cash flow, businesses can become more sustainable and better positioned for future growth and success. 

More effective business model

It is typical for the company’s business model to be impacted during the restructuring process. 

For example, businesses may need to diversify their product offerings, adjust their pricing strategy, or enter new markets to stay ahead. In some cases, companies may also need to downsize their operations or change their workforce to reduce costs and improve efficiency. 

While these changes can be challenging, they can also be necessary to ensure the business’s long-term success. By addressing the underlying issues impacting the business model, restructuring can help prevent insolvency and position the company for a brighter future.

Retain current employees

Another benefit of restructuring is that it allows the business to keep its employees.

Insolvency often results in job losses, as the practitioner will look to reduce costs by making redundancies. This can significantly impact the local community and the economy and can be a challenging experience for employees who lose their jobs. 

On the other hand, restructuring allows the business to retain its workforce and maintain consistent operations. This can be especially important for companies with strong employee and customer relationships.

Restore the business’s reputation

Insolvency can result in negative publicity, as the media often focuses on the company’s financial difficulties. This can harm the company’s reputation and make it difficult for the business to attract new customers, suppliers, and investors. 

Restructuring allows the business to focus on improving its operations and finances and demonstrate its commitment to its customers, employees, and stakeholders.

Protect personal assets

Too often, Clout Advisory has seen personal assets, like the family home, affected by business failures. 

If a husband and wife are registered as Directors of the business, and both own the house, then circumstances that affect the company can return to impact the mortgage on the home.

Restructuring allows business owners to protect their assets so they are not liable to cover the business expenses.

Check all options before closing up

As a small to medium-sized business owner, facing financial difficulties can be incredibly stressful and overwhelming. However, restructuring your business can offer a more positive and sustainable solution than insolvency. 

Working with your advisors to reorganise your company’s operations, structure, management, and finances can reduce costs, increase efficiency, and restore profitability. 

Working closely with specialist restructuring advisors is essential if facing financial difficulties. This will allow you to understand the options available to you.

Before you go down the insolvency path or apply for bankruptcy, talk to one of our restructuring experts.


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