How Restructures Save Small Businesses

Due to the events of the last three months, many small businesses are taking drastic action to protect and save their companies. Some owners resort to marketing ploys or shifting to an e-commerce model.

While other companies may need more action, possibly restructuring their business model. According to Harvard Business Review, restructuring a company may be the key to protect a business’s future.

What does restructuring entail?

First, it’s critical to examine your key contracts and evaluate if the terms and agreements still apply to your business model. If you realign your financial objectives with your current financial burdens, you may find cash flow that was inhibited beforehand. Also, it’s possible to bring in more cash flow if you incorporate a partner or more investors.

Next, you have to work with board members, business partners and creditors to determine the best movement for your capital. You do not want to take action without consulting critical players in your business. And if you are a sole entrepreneur, still consider the best method of recovering from your debts before making any payments.

Afterward, you will need to work with an attorney to determine if you need to restructure in or out of court. Both methods have benefits and disadvantages, but it depends on your financial status:

  • Out-of-court restructuring: is generally cheaper and has more flexibility in terms of the tools you can use in your company’s structure. However, it’s usually harder to obtain for most entrepreneurs.
  • In-court restructuring: happens when creditors and the company cannot come to a new agreement for debt management. They have to work through the bankruptcy courts in order to come to a solution. It’s more expensive but usually helps owners communicate with creditors on the same level.

There is no clear cut way to restructure your company. It may look completely different from person-to-person, but it can be incredibly helpful in terms of keeping control of your business and its debts.