Business Turnaround and Restructuring: Is There a Difference?

Corporate turnaround and restructuring can keep you afloat and able to remain in business. Learn how to take advantage of these strategies.

published Dec 25, 2023

With all the effort required to keep a business running, it's unfortunate that many businesses are still on the verge of bankruptcy. They must adopt several strategies to remain in business, including business turnaround or restructuring.

The global corporate restructuring advisory market is growing and is estimated to be worth $24.1 billion by the end of 2023. This rapid growth won’t end anytime soon, as the market should reach $44.5 billion by the end of 2033.

You’re in luck if you need clarification about how to implement turnaround or restructuring in your business. This article has everything you need to save your business from going downhill. Let’s get started!

What Is Turnaround, Restructuring, and Why Are They Important for Businesses to Consider?

Business turnaround refers to a business’ strategy for bouncing back from a poor financial trajectory. Such financial downturns could arise from improper cash flow and management or poor sales and low profits.

Business restructuring, though similar to a corporate turnaround, may involve changing the business’ core processes. You can achieve restructuring by switching up the organization’s structure, modifying the financial and operational aspects of the business, and changing the business model to revive the business during insolvency.

What Are Three Forms of Restructuring?

Restructuring isn’t a one-size-fits-all process. How you restructure your business depends on the problems you are facing. The following are forms that restructuring can take.

  1. Financial Restructuring: This form improves the business's financial condition. It strives to reduce the debt burden of the business by making changes and sales that improve cash flow and business profitability.

  2. Organizational Restructuring: If a business is facing difficulty due to improper management, organizational restructuring alleviates the problem. It involves changing the number and function of offices in the company and fostering new strategic ways of handling business processes. Here, the company streamlines its modes of operation to ensure the smooth enactment of its activities.

  3. Portfolio Restructuring: In portfolio restructuring, a company will review its business units and assets and decide on the most profitable line of business, after which it will sell the business fragments that do not align with the portfolio it wants to present. The business will also acquire assets aligning with the market it wants to venture into.

Restructuring is not limited to one option and may involve any combination of these forms. You can follow these strategies to produce great restructuring results, whichever one you opt for.

  • Downsizing: Downsizing involves reducing the number of employees, which may decrease the number of operating units. Such changes help the company to save money on paying the employees they let go of.

  • Downscoping: In downscoping, companies eliminate fragments unrelated to the core business. It often co-occurs with downsizing.

  • A Leveraged Buyout: A leveraged buyout involves acquiring another company with money acquired from debt to use the assets of the company you acquire as collateral to pay off loans.

Key Differences Between Turnaround and Restructuring

The primary difference between turnaround and restructuring lies in their goals and end results. Turnaround is an attempt to improve the poor performance of a struggling company, and it usually involves:

  • A Comprehensive Review: The first step to solving any problem is correctly understanding the issue. To successfully implement a business turnaround, you need to carry out a comprehensive review of your finances, operations, and market conditions. By so doing, you’ll identify the loopholes that are causing your business to suffer and draw up an effective strategy to tackle them.

  • Cost Reduction: In a business turnaround, the primary goal is to reduce costs by cutting off unnecessary expenses. From a proper survey, you will discover that there are many things you can forgo and channel the extra funds into more productive ventures. You can try renegotiating contracts and streamlining business operations to reduce costs. You can also reduce outsourcing and increase production to be more self-sufficient. As you reduce the cost of running your business, it is essential to maintain the quality of the goods and services you offer.

  • Revenue Increase: Apart from reducing the cost of production, you need to seek out new ways to increase your inflow. A corresponding increase in your revenue will turn your business finances around. You can achieve this by reviewing your pricing, trying out new production ideas, or entering new markets by launching new products.

On the other hand, restructuring focuses on the following:

  • Restructuring the Management System: Restructuring can involve evaluating the organization’s management system to make changes that improve the company’s operations. Restructuring will review management positions and reassign roles that the company needs.

  • Leveraging Shares: The company can sell parts of its shares or fragments of the company to leave a structure that is most profitable for the organization.

  • Resizing the Firm: Restructuring also focuses on increasing or decreasing the number of employees or fragments in the organization according to what's best for the business.

These three focus areas will create a new business from its prior form with a different and more functional system of operations poised to succeed.

Short-Term vs. Long-Term Solutions

Turnaround and restructuring consulting can give you a good understanding of both phenomena to help you determine the best options for short- and long-term goals, specifically in your business.

However, business turnarounds are the best solution to improve your short-term financial situation. Complete restructuring will equip the organization to escape chronic financial strain and maintain proper function on a long-term basis.

How to Identify Which Option Is Right for Your Business

Identifying what’s best for your business between restructuring and turnaround can be tricky, but here’s what you need to do to make the right decision:

  • Assess Your Current Situation: Analyze your business to have a good understanding of the irregularities that are causing the problems you face. The analysis will tell you whether your company needs to manage its finances or change its structure.

  • Research the Pros and Cons of Each Option: Your company can benefit or lose from both turnarounds and restructuring in different ways. For example, some business structures are less tax-efficient than others, and the way you change your business should typically help you achieve a higher profit.

  • Develop a Plan of Action: After choosing your course of action, you should make arrangements to implement the changes your business needs to thrive. Scrutinize your turnaround or restructuring plan before executing.

  • Monitor Results to Adjust Accordingly: Make sure your plans work as you anticipate. Keep an eye on how things unfold so that you can catch and rectify problems as soon as they appear.

Tips for Successful Implementation

There is always the possibility that things will unfold differently from your expectations. The knowledge of how to avoid or circumvent problems in executing your new business plan is essential.

  1. Consider All Resources Available to You: You must consider all your resources and assets if you want your plan to be effective. Use every necessary resource and recruit every available expert to bring your plans to life.

  2. Engage With Employees in the Process: Your employees’ input can go a long way to help your plans succeed. They can help build connections and sell profitable strategies. As such, communicating your restructuring plan will enable them to work accordingly to guarantee the best results.

  3. Utilize Expert Guidance if Needed: Restructuring and turnaround consulting involves hiring experts who have helped revive many failing businesses to strategize on what’s best for your organization.

Common Pitfalls to Avoid When Turning Around or Restructuring Your Business

It is easy to botch a restructuring or turnaround plan. Many factors can affect the results of your restructuring, especially when there's a need for more experience on the topic. They include the following.

  • Not Seeking Help: Instead of trying to do everything yourself, contact a business consultant with enough experience to consider all factors to produce great results. One thing that makes this a good option is that the better results you get, the better the reputation of the business consulting agency, so they strive to do a good job.

  • Avoid Inadequate Consideration: While trying to save a part of their business, some people erroneously leave out crucial information when drawing up restructuring or turnaround plans. Remember to bring all fragments of your organization or business to the attention of your business consultant or consider them when creating your restructuring strategy.

The Best Approach to Finding Competent Business Consultants

If there is any uncertainty in your business or any aspect that needs a little help, business consulting might be the solution you have been looking for. Consider Foreword Companies to connect with the most influential business consultants who will aid you in your restructuring and turnaround process.

To learn more about how we improve business, you can visit us online and review the testimonials of the people we’ve helped improve their business. Also, schedule a call now to learn how we can help you achieve your business goals.

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