Finance is the fuel that drives the engine of a business entity, and without which an organization can’t perform. Now, a business organization needs to understand that keeping an eye on the available finance and knowing its utilization is a must. Now, while proceeding towards the process, it is essential to know that multiple parameters and logic back the allotment process. Having a word with a professional auditor will give you a clear picture regarding the details that you being a business owner and investor should know.
This guide has been curated to provide a clear picture regarding the restructuring of business finance and its effects. However, before you proceed ahead with how financial restructuring can boost your business growth, let’s take a step and understand the ground level of financial restructuring.
What is Financial Re-structuring?
In simple terms, the financial restructuring process can be explained as the reorganizing the business entity’s assets and liabilities. This process enables the management to focus on relevant business activities. Some of the events that get focused when it comes to financial restructuring include:
- Debt-to-equity swap
- Capital raising through venture capitalist
- Forensic accounting & Fraud investigation
- Company audit etc.
The expert professionals play an essential role when it comes to financial restricting process. Now, they carry out the relevant methods using three approaches, namely:
- Asset-Based Approach
- Income/ Earning Based Approach
- Market Value Approach
Reasons to Re-structure Business Finance
Business professionals prefer to proceed ahead with financial restructuring because of the following reasons:
1.Reduction of Unwanted Costs
A business valuation process helps the management to identify and understand the allocation of business finance. This clarity is essential to spot the unwanted areas where the funds are getting utilized, and then re-allocate them to the most productive domains. At the same time, the management gets rid of the unwanted costs and can make the necessary changes in the accounting and bookkeeping records.
2.Make Optimum Utilization of the Business Funds
A business owner must possess the skill of utilizing the available resources (time, money, human resources) in the best possible way, to figure out the maximum output. As mentioned in Point 1, the unwanted costs get reduced, thus, leveraging the opportunities to make the optimum utilization of the available business funds. This process, in turns, simplifies the audit process as well
3.Improve the Competitive Advantage
Cutting the business finances in the unwanted segments helps the management to relocate the investment in the best possible domains like technology, hiring experts, etc. Such a re-allocation can help a business entity to proceed ahead towards building its stand in the competitive market.
4.Beneficial for Mergers and Acquisitions
Mergers and acquisitions turn out to be a game-changer for any business. Now, at this point, the implementation of business finance in the best possible way is the key to success. In case you are planning to proceed ahead with the M&A process, then focus on understanding the valuation of your business and restructure your finances appropriately.
5.Improve the Business Cash Flow
There might be an instance where-in the management has taken all possible moves to leverage the business activities, but failed to achieve the desired result. If you have also faced a similar situation, then it is high time to have a look at your business finance and its allocation. Correctly restructuring your business finance will help you to improve the Business Cash Flow at the earliest.
6.Reorganize the Business Functions
It is essential to understand that every department in a business entity needs attention to function well and contribute it’s best to leverage the company’s profits. Once the business valuation process gets carried out on the business premises, you will be in a better position to understand the allocation of funds. This will help you to re-allocate the necessary business funds understanding the priority of the different functions prevailing in the entity.
7.Sale of Underutilized Assets
In case you have got underutilized business assets, you need to take a smart move. It is better to purchase it for a fixed price and use the same funds for business expansion or utilize it more productively. This will help you to minimize the clogged business-revenue and channelize them in an alternative way to drive business growth.
8.Improve Efficiency and Productivity
Once the correct ration of the business finance gets implemented, the efficiency and productivity of your business entity get improved to the next extent. This will help the business entity to level-up the profits within a short duration.
