Business Restructuring: The Pros and Cons

By Anita Jaynes on 17 April, 2023

Featured Content

Restructuring a business can be exactly what it needs to excel into a new phase – one marked by success and scalability. Whether you’ve reached a plateau after years of steady growth, or feel as though you’re at risk of a sharp decline, what looks like drastic action may be the key. 

Of course, restructuring a business isn’t a magic cure – there are times when the advantages will outweigh the disadvantages, and times when the risks are just too great to justify the chance of reward. You’ll want to speak with your corporate solicitors to find out how to handle this decision but, for now, here are the key pros and cons to consider. 

The Pros:

Lower operational costs

Restructuring can drastically lower operating costs, since you may downsize to a smaller workforce and, as a result, reduce payroll expenses. Of course, the obvious downside to this is a reduced capacity for work, but outsourcing may be a much more financially viable option than maintaining a large, in-house team. 

Greater efficiency 

Many businesses can suffer from an unnecessarily long management chain, and this can begin to harm efficiency. With a smaller team, things can be addressed much faster, without the hold-ups that a larger team brings with it. 

Better communication

With greater efficiency, and a core team, comes better communication. Instead of messages getting lost as they bounce between insular teams, goals and ideas can be instantly shared with everyone without delays. 

Better use of technology

With a smaller team comes a growing need for automation and better software that avoids your limited capacity from being wasted on repetitive or time-consuming tasks. Any business that wants to be equipped for the future needs to know how to utilise technology, and restructuring can be the kickstart you need for that.  

Better Tax Efficiency 

Restructuring the business means new tax obligations – obligations that may prove far more beneficial to your bottom line. For this reason, restructuring can represent a way to improve your finances without resorting to major cutbacks to your workforce, product quality, or bricks-and-mortar premises. 

Restructuring for tax efficiency isn’t a magic bullet, but it’s certainly worth talking through with your corporate solicitor. 

A better workplace culture

In recent years, many businesses have embraced an employee-owned structure, which gives the business’s workforce a greater stake in the success of the business.

While employee-owned businesses are still in the minority, leading examples from the likes of John Lewis and Hyperion Insurance shine the light on plenty of compelling benefits. From boosting engagement to reducing employee churn, it’s a structure worth considering if your business is starting to stagnate.    

The Cons:

Others may read into the decision

The decision to restructure a business is rarely made during times of success, so you may find that a restructure suggests to customers, employees, and competitors that you’re working through a difficult patch.

The best thing you can do is practice openness. Communicate your plans to those who are impacted by the change, and ensure you are proactive about stemming any rumours that suggest the business is in serious trouble.      

Loss of key talent

Of course, reducing your internal team inevitably means that promising and skilled employees will be lost – potentially to competitors. Knowing who to keep and who to let go is rarely a simple, cut-and-dry experience, and it can be very difficult to feel confident in your decision. 

This is particularly true if you have invested significant time and resources into training them up for the job. It can’t be rushed or handed off to someone else, and plenty of businesses decide against restructuring because of the workforce they have created over the years. 

A blow to morale

Cutting team members and reshaping the workforce can’t happen without some impact on morale. Without the right communication, remaining employees are likely to feel worried and distrustful – and wonder if they are expected to make up for the loss of productivity themselves. Nobody wants to do the job of three people for the same pay, after all. 

The only way to combat this is through communication and reassurance as you help your employees to embrace change, and confidence in your long-term plan. 

Retraining may be needed

As we mentioned above, embracing new technologies and automations is a key advantage to restructuring, but these things are rarely simple from the off. Your remaining team may need training in order to utilise these new resources, and that takes time and money that you may not feel you have to give. 

Pictured above: Photo by Maranda Vandergriff on Unsplash