The Role of Finance in Business Restructuring

January 17th 2021 | Posted by phil scott

The Role of Finance in Business Restructuring

The Role of Finance in Business Restructuring

There are times when a business needs to make financial and operational changes to avoid a crisis or when it is already in financial trouble. Experienced senior finance professionals put themselves at the centre of things when this happens. They provide strategic advice and support to the board in order to help inform the right decisions for the business.

Undertaking this role means that Chief Finance Officers (CFOs) and Finance Directors (FDs) are pivotal to the restructuring process. This means that top finance professionals understand the requirement to have a good understanding of restructuring principles in order to provide real value to a business.

Dealing with debt during restructuring

One of the biggest challenges that CFOs and FDs face when a business is dealing with a difficult financial position that necessitates restructuring is dealing with debt. The best professionals are prepared for having to deal with an increased number of lenders that may not be familiar to them.

This happens because financial institutions often sell debt on. These new lenders often ask for specific and detailed information at short notice. Experienced and prepared finance professionals are aware that this may happen and plan for such requests.

This is not an easy situation to be faced with as new lenders are often an unknown quantity. However, having solid preparation in place makes it less likely that a business will be placed on the back foot in this situation.

Avoiding a crisis situation

The top professionals in finance understand how robust reporting procedures can help a business identify the potential of a crisis before it happens. This can help to avoid restructuring altogether, or to make it a more planned undertaking. This identification of issues, and the implementation of an efficient planning process, means that businesses are able to avoid entering a crisis management situation.

They can make strategic decisions when they start to perform less well. This means that if restructuring is undertaken it is done in a positive manner rather than simply as a result of an insolvency situation. For example, a business may decide to combine various aspects in order to improve efficiency and reduce costs. This type of restructuring can bring about a reversal of the fortunes of a business meaning that it never enters a crisis situation.

There is no doubt that knowledgeable finance professionals are at the centre of businesses becoming more aware of how to avoid a crisis. Doing this may still involve some form of restructuring, such as reducing employee numbers or rethinking supply chains. However, all of this can be dictated by the best interests of the business rather than by the requirements of lenders and other creditors.

It’s clear that finance professionals have a pivotal role to play when it comes to business restructuring. They can help the business to avoid entering a crisis situation by taking positive action when financial performance dips. They are also integral to dealing with lenders should crisis-driven restructuring take place.

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