How to Restructure a Company to Increase Profits

by Contributor; Updated September 26, 2017

Restructuring a company in the face of declining profits is a tough, nononsense operation that requires a willingness to face financial realities and triage difficult decisions. There are ways to not only stop the bleeding, but also heal and strengthen the patient for the future.

Step 1

Consider hiring a turnaround specialist--as either an interim manager or a consultant--to help with restructuring. An outsider often brings objectivity and a fresh point of view.

Step 2

Analyze the extent of the problems. Is the profit picture merely ailing or is it terminally ill? Is the company's core business still financially viable?

Step 3

Develop a restructuring plan and present it to the board of directors, management and employees. It may also be advisable to show the plan to certain outsiders, such as bankers and other creditors, and to major vendors.

Step 4

Start at the top. Replace weak members of top management and the board of directors. Then reduce management layers. Unprofitable companies are often bloated with middle managers.

Step 5

Investigate the possibility of restructuring debts or acquiring bridge loans to finance the restructuring costs.

Step 6

Identify the most profitable customers. These aren't necessarily the biggest accounts. Concentrate on buyers who make few demands on the customer-service department, rarely return products and require only minimal marketing attention to prompt repeat orders.

Step 7

Prune less-profitable product lines and increase financial and employee investment in more-profitable areas. Withdraw completely from unprofitable markets.

Step 8

Close some facilities to reduce overhead. Consolidate divisions to eliminate duplicate administrative functions, and/or sell off underperforming divisions of the company.

Step 9

Lay off employees or reduce some jobs from full to part time. Although this is one of management's most painful tasks, it's often essential for improving the profit picture.

Step 10

Outsource costly services. Paying a flat fee to have selected services performed may reduce expenditures associated with in-house employees.

Step 11

Move part--or all--of the company to another state (or country) to obtain lower employee wages, reduced power rates and/or special tax incentives.

Step 12

Form a partnership with another company to share administrative services or technical expertise.

Step 13

Investigate the latest technology for streamlining operations and/or improving products. Autoresponse voice-mail programs can handle phone inquiries. Robotic production components are becoming increasingly sophisticated and cost-effective.

Step 14

Schedule personnel meetings to deal with the questions and concerns of remaining employees. After restructuring, the company's management will need to explain new procedures and financial projections.

Tips

  • Develop strategic alliances with a limited number of vendors to lower costs. Accelerate the development of products with a high profit potential by shifting supporting resources from lessprofitable areas. Include answers to clients' frequently asked questions (FAQs) on the company Web site and refer to its URL in the company's automated phone system.