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Restructuring is 'cleaning up and rebuilding while the shop is open'.

September 11, 2020

No two restructurings are the same, but at the heart of it all is the improvement of liquidity and long-term continuity. Restructuring management is a crucial factor in the success of restructuring.

Written by Bart Kroon, interim executive

Every reason for restructuring requires its own solution, its own transformation process and no two cases are the same. Nevertheless, in addition to the diversity of solutions, there are three generic transformation priorities that jointly ensure liquidity and continuity.

Restoration of Cash Generating Capability

The first priority in any restructuring is to improve the cash generating capacity of an organisation, because an improvement in the cash flow improves the prospects of the organisation in all aspects; short and long term financial independence, agility, reliability, investment capacity, profitability, stability and resilience. In situations of stress, only a structural improvement of the cash generating capacity makes structural refinancing possible.

Restoring cash generating capacity often initially requires a combination of discipline, smart and consistent working capital management, creativity in contract management and maximum utilisation of funding relationships.

Examples from practice are the stricter management and collection of debts, shortening/accelerating billing intervals, "selling" receivables, renegotiating contracts with customers and suppliers, sale & lease back transactions concerning assets, reclassifying loan capital components and, of course, renegotiating debts and conditions with financiers. Part of liquidity management can also be the disposal (spin-off or sale) of capital intensive activities or assets.

My personal experience is that in a restructuring setting much more is possible than during "normal operations" is thought possible by stakeholders. The role of the restructuring management is crucial; decisiveness, tenacity, creativity and the ability to close a new deal with different stakeholders.

Towards a business model that creates sustainable value

The second priority is the sustainability (or extension) of the value creation or business model. Business models become worn out over time, and special circumstances can make business models ineffective in the short term. In a restructuring, it is important to focus on the essence of a company's value creation, recalibrate it and transform it into that recalibrated model. Part of restructuring business models are turnover, fee, margin, cost price and overhead structures, "make or buy" and/or "insource & outsource" decisions, recalibration of customer orientations, product-market combinations, marketing and distribution models. Here, too, the privatization or acquisition of activities can be part of the restructuring. Often a reorientation of the human capital of a company is necessary, you cannot play a different kind of game if you do not change the players and the line-up. Momentum and speed of the transformation are essential for a successful restructuring and you can achieve this by making a good analysis of the situation on the one hand and letting creativity lead the vision and strategy behind the solutions and on the other hand by letting energy arise from that vision and strategy and let it flow into the realization.

Under pressure of reorientation, more, better and faster is often possible than under 'normal' circumstances. The role of the restructuring manager is that of director and decision maker. Ultimately he/she determines the direction, the pace and also takes responsibility for the sacrifices that must be made for long-term continuity. Where possible/necessary, stakeholders are included in such a transformation but sometimes there is no room for this, then the "good reading of the stakeholders context" is an important skill. Long term continuity is here a virtual principal. Not an easy role, but a very rewarding one by the way.

Saying goodbye

The third priority in restructuring is to say goodbye to those activities, values, assets and relationships that have no or only limited value for stakeholders in the future. There are many words and synonyms for this, such as non core, partially operated assets, discontinued business, bleeders, paid retirements, hobby horses, personal overheads. Just like the garage at home; over time a cacophony of stuff accumulates that you'd better say goodbye to. For an organization in restructuring this is ballast, gives de-focus, brings risks with it and ultimately stands in the way of continuity.

Saying goodbye, in terms of disposing of, selling, liquidating or closing down, is often a difficult process in organizations. It is precisely restructuring management that can effectively end or dispose of such activities and relationships. On the one hand from the lack of historical involvement with the activities and on the other hand from the skill in disposing of them. Cleaning is a profession and so is privatizing and/or selling activities.

A restructuring, by the way, is "cleaning up and rebuilding while the shop is open" and it is the responsibility of the restructuring management to ensure that the core of the organization is not distracted in its primary task; continuing the operations of the core of the business and restoring cash flow and value creation.

More information and contact details

If, after reading this article, you would like to make an appointment, we would be happy to come and think with you for a day without any obligation.
Please contact us.

Harm Tunteler

+31 (0)6 229 863 85

h.tunteler@jbr.nl

Bart Kroon

+31 (0)6 209 597 47

executives@jbr.nl