Restructuring a business can result in a variety of changes to a company’s organizational structure, product mix, financing strategies and overall operations. The changes that occur during a corporate restructuring depend on the problem or opportunity that the business hopes to address with the change. Understanding the effects of restructuring your business will help you make more informed decisions and reduce your need to take on more debt or sell part of your company.

Restructuring

Restructuring a business can help a struggling company improve its position or help a successful business expand more than if it continued operating under the same structure. A restructuring might involve changing the way the company is managed, addressing debt-service and financing strategies, going into a new market or changing the company’s product or service.

Organizational Shift

Some restructurings require an organizational change. This might result after a business enters a new market, requiring separate business units to share administrative functions or a corporate headquarters to oversee independent divisions. A restructuring might require a new management team or a small business owner to sell part of the business and bring on a new partner or partners. A company that previously outsourced most of its administrative functions might bring them in-house. In other cases, a marketer of products who buys those products from sub-contractors might begin manufacturing the products instead of buying them. When two companies merge, one layer of management and other redundant employees must be terminated, resulting in mass layoffs.

Change in Financing Strategies

If a company can’t meet its capital needs, it might sell stock or take on investors. This would allow the business to buy another company, open new locations or add new products to its line. This requires the company to change its financing strategies based on its new debt load and long-term financing needs. If a company has too much debt to operate profitably, it might restructure by taking out new loans at higher interest rates but lower monthly payments. Selling stock or part of the business are two options to help reduce debt. Some restructurings focus on cost-containment, which can result in changing the mix of in-house and outsourced functions the company uses, as well as changes to its product line, labor use and operations. In this scenario, the company might renegotiate its contracts with vendors, suppliers, contractors, leasing companies, creditors and employees.

New Product Mix

When a company enters into a new marketplace, it might need to restructure the business if the new products or services require a different skill set. This might mean adding a division to the company or opening a new production facility. For example, a shoe company that adds a new shoe to its line wouldn’t require a corporate restructuring. A dress maker who decides to add men’s suits to his product mix might need to restructure the business.

Different Distribution Strategy

One way to restructure a business is to sell using different distribution channels. If a company has sold only through intermediaries and decides to add direct sales, the company will need to address the operational changes that come with direct sales. This might include changes to its sales force, order-taking processes, product fulfillment, accounting services, customer service and information technology.

Re-Branding

When a business goes through a restructuring due to a change in its product mix or distribution strategy, it might need to change its marketing message. Depending on whether the company’s unique selling differential and key benefit change, the business might need to create a new brand message and brand-management strategy.