Financial Restructuring Guide: How to implement Financial Restructuring?

Written by VentureXchange

January 10, 2020

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Financial Restructuring has a meaningful role in business processes and structuring. Moreover, turnaround, the process of identifying and setting operational issues back on track to return a company to sound profitability.

That presents massive financial, operational, and emotional challenges to those directly involved in the process. However, most firms that have struggled through such difficulties reflect that it’s never too early to start the turnaround process.

According to TMA Global restructuring can be fraught, frightening, or, plainly and simply, a grind. Committee can usually have an impact on decision making within the organizations.

However, organizations move even further toward group-think. That also ensures that there are always reasons not to do something meaningful or not to be open for new decision planning.

Financial restructuring is required when a company’s performance is unable to keep pace with its financial obligations to creditors and other stakeholders.

It will often be the chance to alleviate distress and provide a platform for a turnaround in the company’s prospects. Failure to undertake financial restructuring can, unfortunately, often lead to a company having the one option to enter insolvency. The first signs of a need for financial restructuring include also understanding the promise or payment obligations.

Steps to take in Financial Restructuring

The first step for a company facing a financial restructuring is to make a quick, but thorough assessment of short-term (typically, 13-week) cash requirements.

It is necessary to assure that the business will reach its critical competencies while stakeholders assess and support the state. If there is a risk of a shortfall, this should be corrected.

Besides, all relevant stakeholders need to be immediately identified and mapped into various groups which is not always a simple task. The key objective at this point is that everyone comes to the table, recognizes the urgency and agrees on next steps.

Moreover, creating consensus can provide an opportunity to protect value and avoid possible insolvency for the company.

The first step in stabilization is a rapid yet detailed assessment of funding levels. The next step in the stabilization process for a company is to develop a stable platform to asses options. Also, it is crucial to review short-term cash flow to see how well management controls and monitors the cash.

Vital to a well-managed financial restructuring is the ability to secure stakeholders’ support for risk management during the initial assessment.

Moreover, Stakeholders need to challenge assumptions from borrowers and lenders. That includes understanding the reasons for underperformance, which might involve the management team, strategies, initiatives and the company’s business plan.

Developing a plan for Financial Restructuring

A company must assess the current management roles within the company. Also, the company needs to asses whether those are appropriate for the circumstances and overall goals of the business. Working together, stakeholders should establish a preferred outcome jointly with tolerable compromises and an effective method to determine strategy.

It is also essential to develop more than one plan to address possible contingencies. The first phases of appraisal, assessment and negotiation should lay a foundation for the development of the new capital structure.

To help ensure an efficient process and preserve value, the company should implement a deal in order. At the same time, new developments and demands from stakeholders might necessitate a reworking of the plan or even a return to developing options. Besides, for either borrowers or lenders, there is no valid assumption that the crisis passed.

Another important issue involves tax efficiency. In many cases, the original debt arrangements designed to mitigate tax liabilities were satisfied. However, restructuring can significantly change a company’s tax position. Since the implementation of the deal is underway, the restructuring must not unintentionally result in higher tax payments.

At this point, stakeholders reach a certain level of confidence that the worst days have passed. Also, management is focusing on catching advantage of new opportunities through restructuring. Lenders should be satisfied that the value stayed preserved as much as possible.


However, financial restructuring is a dynamic process, and new developments can change circumstances for everyone. For example, existing dept could take place in secondary markets, while new debt owners could be satisfied with the deal. The company may not perform according to plan, therefore, new possibilities could take place.

Planning realistic and tangible steps for the turnaround project, setting aside time to evaluate the impact, and then being open to creative, perhaps unprecedented, ideas are also necessary for measuring success. Also, continual analysis during implementation will determine if the company sits in the bottom of a financial or operational cycle or can begin the climb upward.

Moreover, attention to performance metrics, analysis, and action is a necessary step in financial restructuring. The goal is corporate renewal through long-lasting, impactful change.

Therefore, regular analysis through implementation determines if the company lies in the bottom of a financial or operational cycle. Thus, the company can begin the climb upward. You can learn more about financial restructuring in terms of analysis in the DCF model.

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