COVID-19: Why does your Business Require Financial Restructuring
25

Aug 2020

Things are slowly turning back to normal, and businesses are gradually starting up. But still, there is fear in the hearts of the people regarding the Coronavirus. Many companies are not working at complete efficiency due to the virus and have to get used to such situations in the future as the virus is going to stay here for long.

The businesses on a global scale are not able to conduct their business activates because of this virus. This has also created a situation of recession as people are not able to go to work, and due to this, the money is not circulating. Businesses are facing a cash crunch and are not able to operate properly. Some of the businesses also require to fire people so that the business can sustain the present situation.

These issues of the flow of cash in and out of business can be handled by a proper Financial Restructuring of the business so that the business is able to sustain itself.

What is Financial Restructuring?

Financial Restructuring of a company can be defined as the rearranging of the structure or hierarchy of the business so that the efficiency and the profitability will increase. The financial restructuring of a company is done when there is a change in the management of the company (during takeovers, mergers, etc.) or when a company is taking heavy losses due to changes in the business environment.

There has to be an increase or decrease in the cost of raw materials or a change in the fixed costs over time. A slight change in the prices can affect the business in a huge way. Financial Restructuring is a tool that is employed by the management to reduce the effect of the change towards a company. Though it is a very effective option for the revival of the company, it is usually considered as a last-ditch effort as it can cause loss of jobs for many of the employees.

How can Business Restructuring help during COVID-19?

There are numerous ways by which Business Restructuring can help increase the profits of the business. These are:

1.Saving Costs

The objective of a business is to make profits, and when the businesses are taking up too many funds but giving out a comparatively lesser profit, then it becomes very important to restructure the business. How the current business is performed and which activity is taking up most of the funds is checked. This will help in removing or working around a hurdle and increasing the profitability of the business. One of the best approaches for saving the costs of the business is to streamline all the business activities and allow for business simplification.    

2.Judicious use of Resources and Raw Materials

In order to perform the Financial Restructuring of a business, the management will have to understand the working of the company. Each and every activity which is performed in the company must be clear to the management. After this, the management can decide if there is a wastage of resources during the business activity. 

3.Increasing Liquidity in the Business

It is very important for a business to have liquidity. This way, a business will be prepared for any unforeseen circumstance. Having liquidity will also help in the day to day activities of the business. During the days of the COVID-19, businesses are facing a cash crunch as not all people are able to work. Increasing the liquidity of a company ill definitely help in such situations.

4.Maintaining the Cash Flow

Cash coming into the business and going out of the business is known as the cash flow. It is of paramount significance to maintain a proper amount of cash flow in a business. If there is greater cash coming in than what is being used up, then the business is not suitably utilizing the resources available to the business. If the outflow of cash is greater than the inflow of cash, then the business will very soon go into losses. Financial Restructuring of a business will help the management to correct the situation and maintain a proper cash flow in the business.

These are some sure ways by which Financial Restructuring can help a business to grow and achieve profitability.   

It is crucial that the management avails the services of a third-party during the financial restructuring. These are experts in the field and will help the business streamlining all the business activities of the business and will also help to increase profitability.

If you are looking for such financial consultancy in the United Arab Emirates, have a look at the numerous services provided by JAXA Chartered Accountants. JAXA has a healthy experience in such financial matters and can help increase the profitability of your company. The aim of JAXA is to provide the best financial services at a competitive price. For more details on the various services of JAXA Chartered Accountants, Contact Us. We will be happy to answer all your questions about the workings of JAXA.