Why do companies reorganise?

Why do companies reorganise?

Businesses today operate in a landscape of challenges and change. Owners who periodically review and reset their structure are best placed to exploit changing circumstances and new opportunities. 

There are a wide spectrum of circumstances where reviewing and reorganising your business structure can help your business achieve greater profitability, harness efficiencies, manage risk, reduce tax liabilities and help you realign your business and personal goals.

What is the difference between reorganisation and restructuring?

Group reorganisations don't have to be significant changes, they can often entail small changes to the organisation of a business for example, creating a holding company, creating or moving a subsidiary company within the group, moving assets around the group, or a reorganisation of debt.

Corporate restructuring is often linked to companies that are in financial difficulties. Restructuring often means changing the organisation of the company completely. For example, financial restructuring is used to reduce debt, increase efficiency or other changes to modify and reshape operations.

In this blog we are covering business reorganisation, the reasons why you may consider it and the benefits a reorganisation can achieve for your business.

Reasons for company reorganisation

Reviewing your company configuration should be considered every time your business prepares to or goes through a significant change or new phase in its life cycle.

There can be several reasons for example:

• Periods of fast growth.
• After mergers and acquisitions.
• A need to improve tax efficiency.
• Working capital improvement.
• To ring fence risk (for example when developing and launching new products or when purchasing new assets such as property).
• Changes in market conditions.
• Exit planning.

What are the types of reorganisation a company can do?

Company reorganisation can take many forms and there are a variety of structures that companies can use. This will depend on what you wish to achieve. The main types of company reorganisation include:

• consolidating businesses into a group structure
• establishing a new holding company/parent company
• share reorganisation
• demerging or splitting a group.

Benefits of company reorganisation

Reviewing your current business model and subsequently reorganising your business structure can ensure that your assets and resources are performing to their best potential. 

Reorganisation enables you to change the ownership, operational, capital, tax and legal aspects of your company to align your organisation to your long-term goals and personal wealth objectives. 

There can be many additional benefits of reorganisation including:

1. Remove obstacles to growth.
2. Reduce costs.
3. Enter new markets.
4. Expand internationally.
5. Fill performance gaps.
6. Improve business processes.
7. Increase revenues and profits.
8. Improve cash flow.
9. Improve business performance & culture following a merger or acquisition.
10. Provide flexibility for exit and succession.

Reorganising for fast growth

If you are running a fast growth business, it is critical to pause and review the way your company is structured.

Rapid growth creates a need to review and potentially implement:

The way you are capitalised - to avoid the risk of overtrading.

How your assets are held - for example, do you need to hold property differently or create a holding company to protect stable parts of the business from riskier new ventures.

Employee share schemes - whether the time is right to issue or review share schemes.

Profits - how you move profits around tax-efficiently within a group.

How you are remunerated - making sure you extract profits tax efficiently and exploit all the tax reliefs available to you.

International expansion - making sure any subsidiaries sit in the right place within your structure.

Reorganising for exit and succession

If your company structure is complicated, it may be worthwhile 'tidying up' your business model well in advance of your exit and succession. You may want to look at merging parts of the group for simplicity before a business sale or split off assets such as property prior to sale.

If you are planning to pass your business to different family members, then you may need to change your current model and structure to enable you to pass different parts of the business to different people.

It is critical to ensure before you sell your business that your management team are on board and you can retain them for consistency during and after the sale. Reorganising shares to ensure that your key management team and shareholders are secured prior to sale can be critical to improve the value of the business and guarantee its future.

When thinking of the future of your business and your possible retirement or succession, it’s essential to review all the working parts to put you in the best position both commercially and from a tax perspective.

Get business advisory with Haines Watts

Haines Watts provides support and advice for companies in all sectors and sizes around business strategy and structure. If you need to review your business organisation and are considering a new structure for your business, then contact us today.

For more information on business reorganisation, then read our Business Structuring Guide today. It contains examples of how we've helped business owners change their business structure for a wide variety of reasons and the outcome we have achieved for our clients.

For more help and advice, contact our team in Wirral, Chester or Liverpool.

Conclusion

Reorganising your business can enable you to remove obstacles to growth, reduce costs, enter new markets, fill performance gaps, improve business processes, increase revenues and profits, and even avoid running out of cash altogether.