Audit and Assurance

What does one mean by Corporate Restructuring?

March 23, 2021 Comments Off on What does one mean by Corporate Restructuring?

When a business is not running as per your expectations and the business is gradually going towards loss, then the next best step to do is to restructure the business. A restructuring of your business can have many effects on your business. It can be a very hectic and time taking move but if done in the right manner, can save your company from going into losses and ultimately winding up.

If the company under great duress, the management may try to restructure its firm but it is usually considered as an option when all the rest of the alternatives are over or there is no other choice left.

Let us first understand the meaning of Corporate Restructuring

Corporate Restructuring: Definition

Corporate Restructuring can be defined as making a change in the business portfolio or in the composition of the firm in order to make the firm more profitable or to fulfil the present requirements of the business. It can deal with either changing the hierarchy followed in the business or can be done by changing the fund structure followed in the business.

This can be done in two different ways and both of these ways are explained below:

  1. Financial Restructuring

The financial restructuring will allow a company to get more profitable and will also help the company to sustain much longer. Financial restructuring is also required at the time when a company faces difficulty in the business environment. In Financial Restructuring the business changes the equity pattern of the company or the debt of the company, etc. this means that the pattern in which the funds in the business are cumulated are affected.

  1. Organizational Restructuring

Organizational restructuring refers to the change in the structure of the business. This means changes in the hierarchical structure, downsizing of the employees, etc. This change will help reduce the cost incurred by the business and will allow the business to operate some more. This type of change can be done for a short time but it can affect the goodwill of the business.

Why should a Business go through Corporate Restructuring?

There can be various reasons for a business to go through corporate restructuring. Some of the reasons are mentioned below:

  1. The Financial Condition of the Business

When the company starts making fewer and fewer profits, the business needs to restructure itself in order to make profits and sustain itself in the market. The management needs to understand the current financial situation of the business and then make a decision accordingly. As this decision will affect the future of the business, the management should consider taking the assistance of a professional.

  1. Changing the Business Strategy

A change in the business strategy will result in a change in the corporate structure. The business strategy can change due to various reasons such as a change in the business environment, merger or takeover of the business, etc. The business strategy changes only if it is an important requirement and without it and if the management gets to know that such a change will positively affect the business profitability.

  1. Checking on the Wastage of Resources of the Company

Wastage of resources in a business can affect it adversely but if taken in stride the business can make it into an opportunity. Wastage can result in the downfall of a company and so it is very important to check that there is less or no wastage. The lesser the wastage more is the profitability. The management needs to conduct periodic checks of all its processes and assets which will help reduce the wastage of resources. The company can even perform restructuring which will help in the matter of reduction of wastage.

  1. Change in the Management of the Company

This means that the management of the company changes and the people at the top want to change how the company was managed previously. This can be caused due to many reasons such as addition or death of a partner, takeover or merger, sale of a business, etc. it may also be possible that in order to keep the company afloat, the management may sell a part of the business and this part of the business is taken over by different management.

These are some of the reasons why a business should go through Corporate Restructuring. The corporate restructuring will not only help the company to stay afloat but will also provide a new life to the company. This is why it is recommended that when a company is looking to get more knowledge about this matter it should consult an expert.

If you are looking to conduct a Corporate Restructuring of your company in the UAE, then you can look into the services provided by JAXA Chartered Accountants. They also provide a number of different services such as Accounting Services, Auditing Services, TAX Related Services, ESR Related Services, etc. For more details on the services provided by JAXA Chartered Accountants, feel free to contact us. We will be happy to help.