The COVID-19 pandemic has had adverse economic consequences around the world and small businesses have not been spared. The financial situation of many businesses has been completely destabilized as a result of the financial impact of the pandemic in an already competitive and challenging marketplace.
Many companies faced a total cash flow disruption and were left without the funds to restart their businesses. As the new year begins, business owners want to regain financial and organizational stability, and debt restructuring is one of the best ways to achieve this.
What is financial restructuring?
Financial restructuring consists of initiating a set of measures adapted to protect business owners from creditors and give them the time needed to rebalance the financial situation of their company.
This process aims to find more adequate repayment solutions with creditors and is often accompanied by an operational restructuring that helps establish the necessary measures to restore entrepreneurial activity. It is therefore a reorganization of the company’s obligations that will help turn around its finances and restore its productivity.
Negotiations between entrepreneurs and creditors may result in a temporary decrease in interest rates, in the total amount of debts, or an adjustment of payment terms to allow the company time to get back on its feet.
There are two types of debt restructuring depending on the financial situation of the business:
- A general restructuring of the company that is planned outside of an emergency situation and that facilitates communication with creditors, allowing at the same time to easily modify payment terms and interest rates.
- A restructuring of debts in difficult situations requires good negotiations with creditors and the services of a licensed insolvency trustee who will help you find adequate solutions according to your financial situation.
How does debt restructuring work?
When a company faces financial threats and debt restructuring is being considered, a licensed insolvency trustee must be called in.
Restructuring experts work closely with their clients to assess all areas and aspects of the business and develop the best possible strategy.
The process takes place in two consecutive phases:
1. The analysis
It is necessary to take the time to analyze all of the company’s activities in order to detect the source of the financial problems it is experiencing. This analysis aims to establish an economic and financial diagnosis, through an in-depth study of the company’s financial performance and the parameters for managing the activity.
This evaluation allows the identification of operational and financial dysfunctions to make the necessary changes to improve the company’s cash flow and performance.
2. The elaboration of a business recovery and restructuring plan
This plan depends on the situation of each company and is implemented based on the financial and operational analysis previously established.
Groupe Serpone’ experts will help you implement various measures in order to :
- Rebuild the company’s equity capital
- Negotiate the terms and conditions of debts with creditors
- Refinance debts
- Develop a viable business plan
The financial restructuring plan must benefit from a global approach aimed at restoring the company’s cash position and organization to revive its activity.
What are the benefits of debt restructuring?
Debt restructuring is used to find solutions when a company accumulates losses, has difficulty repaying its debts and paying its bills, or when it is going through a period of recurring cash flow tensions.
Its main objective is the improvement of a company’s financial situation and to this end, it makes it possible to :
- Strengthen and balance the company’s finances
- Set up an optimal financial structure
- Negotiate more favorable loan conditions
- Obtain cash or investments to finance some operations
- Improve productivity and competitiveness
- Reduce the number of creditors and interlocutors
- Achieve savings and stimulate growth
- Simplify management and communication
- Establish an adequate business plan
- Improve the operational flexibility of the company
Debt restructuring vs. Business bankruptcy
Debt restructuring has fewer consequences than business bankruptcy, which can cost thousands of dollars even for small businesses. The current system works to enforce financial obligations and does not protect companies that file for bankruptcy. The declaration of bankruptcy, therefore, remains the last option.
Debt restructuring requires a great deal of time and energy that is spent negotiating with creditors and various financial institutions or suppliers to find an agreement that is compatible with your financial situation. This process can take several months.
Companies generally offer equity to creditors. So that they accept a share of the business in return for some or all of its debt. Be aware that depending on the cash position and the strategies deployed, the assets may be subject to the procedures of the Bankruptcy and Insolvency Act and a request for a commercial proposal may be filed during this process.
A debt restructuring plan could save your business
When your company is facing financial difficulties, debt restructuring allows you to establish a debt relief plan and avoid corporate bankruptcy.
If you have the ability to pay off your debts quickly, you can proceed by negotiating yourself. However, if you estimate delays of a year or more, it is recommended that you deal with a bankruptcy trustee since it is a long and stressful process that requires multiple meetings with debt collectors.
To ensure a successful financial restructuring, Groupe Serpone helps you put in place an informed business plan. Our team takes care of it:
- Analyze all payment terms with your creditors to find out which ones need to be restructured.
- Study cash flow to determine losses and inflows to the business.
- Establish a detailed monthly budget and determine how much you are willing to spend monthly to pay off your debts. If this amount is less than 8%, it will be difficult for clients to negotiate this restructuring on their own.
- Prove the financial difficulties that the business is going through
- Negotiate with creditors to reduce the total amount of the debt or to extend payment terms. Creditors may accept an offer or refuse it and then the negotiation may take several months.
- Filing a proposal bankruptcy after the necessary discussions with government agencies in order to initiate the appropriate procedures to save the business.