The economic situation around the world is not very good in many nations and is hitting so badly that many companies are forced to look for a financial restructuring to avoid being closed. The job of financial restructuring advisory is not so easy and we should not take it very lightly, it needs expert guidance to help the companies to come out of the situation.
What is financial restructuring?
The strategies required to survive a business when there is a change in the market or legal environment. This cannot be done without the help of financial restructuring services and there are certain pitfalls that need to be avoided while doing the process.
Important points in Financial Restructuring Advisory & Financial Restructuring Services:
Find out the root cause of problem:
The financial restructuring is not just a refinancing. It should be changes that a company need to implement so that it can generate enough free cash flow, it can cover the service of debt and can satisfactorily remunerate the shareholders. The process should not be only putting blame on others but the implementation or improvements in the scope of firm, its capital structure and asset management.
Give more importance to Economic Profitability:
Any financial restructuring advisory should give more focus on economic profitability over accounting profitability. The accounting profitability is basically the ratio of earnings to book equity, whereas the economic profitability will focus on real cash flow that the shareholders will receive. So, naturally the economic profitability takes the lead role here.
Have a strong checklist before the actual negotiation:
You just cannot jump on a negotiation without giving a proper thought or check of the terms and conditions that are offered to you by the financial institutions. The checklist should include –
- How the refinancing is going to be distributed.
- Limits and guarantees
- Negotiable points
- Possible counter-proposals from the financial institutions
- If possible, matters to be kept in reserve which can be raised during the process.
Do not overlook the organizational capabilities:
The knowledge, processes, resources and the skills that can give a specific outcome which can be delivered by the company should be taken into consideration before planning any strategy. Otherwise, it might not bring the outcome as expected and can result in diluted impact.
Do not plan your strategy keeping in mind only the key people:
This is a very common mistake the strategy planners can do as they tend to plan the restructuring exercise keeping in mind the key people and trying to match up their roles. This is a very critical task and it has to be done in such a way so that the right work can be done in the best possible ways.
Don’t forget about the technical and tax complexities involved in restructuring:
The restructuring process aims at reaching a private agreement in order to avoid legal proceedings. The objective is to ensure the continuity of the organization and after restructuring the value of debt should be greater than the value of the company in liquidation.
Successful restructuring is not an easy task but can definitely be a success if the pitfalls can be avoided.