How to Restructure a Company to Increase Profits

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Restructuring a company can feel intimidating, but it's often vital for growth. You're facing this potentiality because the company isn't meeting expectations, especially in terms of revenue and profits. You need to make some tough decisions in order to obtain the results you want.

To perform a business restructure, start by analyzing your budget and the efficacy of each department. Then, take a long, hard look at the products and services you offer. First and foremost, understand your company's goals of restructuring.

Understanding Your Goals of Restructuring

As with any goal-setting endeavor, you need to set SMART goals to increase the likelihood of achieving the results you want. SMART is an acronym that stands for specific, measurable, assignable, relevant, and time-based, and thinking about each of these characteristics can help you plan your goals. For example, it's inefficient and ineffective to simply say you want to "increase profits," but if you assign a specific and measurable number to the goal (such as a 20% increase or $200,000 additional yearly revenue), you can track your progress and feel motivated to continue.

So, what exactly are your restructuring goals? Are you facing the possibility of having to close down a location because you can't pay the overhead costs to maintain it? Then you know you need to at least find enough money to keep this location open, so factor that into your profit goal. Maybe you don't have any impending doom hanging over your company to motivate you into quick action, but that doesn't mean restructuring can't facilitate the long-term growth of your company.

Regardless of your motivation to restructure, put a number on it and figure out how you'll track your progress toward that goal. Don't forget to also assign team members actionable steps with a deadline so that progress continues marching forward.

Analyzing Your Current Budget

Perhaps the problem isn't a matter of increasing profits but controlling wasteful spending. Your company might already make a huge profit, but the money is being reinvested in ways that don't contribute to the company's overall growth. Therefore, the company's net profit seems skewed low.

Start by analyzing your current budget for anything that seems repetitive and out of place to try to curb spending. Make a note of anything that seems worth investigating, and ask each department for an itemized budget to further understand where the company's money goes. Also take the time to ask department leaders for their input about the department's budget. Sometimes, expensive software programs and tools don't get used to their full extent, making cheaper but less-advanced options just as useful.

You also need to look at salaries, including that of the CEO. If the CEO takes home $500,000 each year but the company is struggling to find the money to hire additional associates, there's a definite problem in how the company's profits are distributed as wages. Reining in raises or commissions may need to be an important step in your plan to restructure the company, but you won't know for sure until you complete the next step: analyzing the efficacy of each department or program.

Assessing the Efficacy of Each Department

Next, you need to assess the efficacy of each department. In essence, you're looking for the departments that don't require many resources but manage to produce a significant profit for the company through sales. It can be difficult to determine the impact that a department has, especially when so many departments work together to produce stellar results for the company. Start by looking at the key performance indicators of each department as well as their budgets in order to assign a dollar amount to each key performance indicator.

For example, if you chart the company's overall profits throughout the entire year and add markers to denote the launch of a marketing campaign, you can analyze the increase in profits after the campaign versus the previous period to understand the immediate impact of the marketing campaign. Next, compare the marketing budget with the apparent increase in sales to obtain the net profit. If a marketing campaign cost $25,000 to implement and generated a $30,000 increase in sales, the net profit was $5,000. Is that an acceptable profit for your company?

To the best of your ability, determine the net profit of each department and major project in the company. Although some projects may be well intended, they might not bring in the expected profit. Be sure to look at trends in company finances both annually and for each quarter to gain the proper perspective.

Evaluate Products and Services

Next, you need to take a look at what services and products you offer. Which contribute most to your profits? Which sell poorly or are too expensive to produce? Sales figures are the ultimate key performance indicators in which you'll be interested, but tracking things like which specific items or services are selling and which are not will help you focus your energy on what works while abandoning what doesn't.

So far, you've been looking primarily at ways to reduce extraneous spending in your company. Now, you need to also think in a more positive light: What opportunities are available to the company of which you should take advantage? A traditional SWOT analysis or market survey can help you discover market gaps for services or products. Restructuring a company to increase profits may be a matter of devoting more resources toward a new line of products based on the needs or desires of consumers.

Maybe your products simply need an upgrade to help them stay competitive. Imagine if you sold cellphones but never took the opportunity to develop touchscreen technology. Of course you wouldn't make any profit with a flip phone in a smartphone world. Evaluate your products and services and analyze the competition to discover if a "face lift" could help you obtain the profit margins for which you're looking.

Handling a Major Restructure

Say you've decided to focus on a new line of products while discontinuing an old one. You also want to implement some new policies to curb unnecessary spending within each department, and you want everyone to use cheaper software for project management, inventory management, accounting, point of sale, etc. Your plan looks great on paper and your goal is realistic, specific and measurable. Now, you just need to implement it.

This, of course, takes time because everyone needs to be retrained in new company policies and procedures. There will be a learning curve, so plan accordingly. For example, introducing a new product means that everyone from sales to customer service to marketing will need to be briefed on that product. Transitioning to a new software program requires its own special set of logistics, but the new software company might offer team onboarding and training services to help your company smoothly adjust to using the product.

Of course, if you have to fire people, give everyone a chance to process the news and be tactful. Try to offer employees a new position if their old one becomes redundant. Take advantage of your human resources department to make sure that everything you do in your company restructure follows the company's own policies as well as any state and federal laws.