Financial & Managerial Restructuring

Financial restructuring is the reorganizing of a business' assets and liabilities. The process is often associated with corporate restructuring where an organization's overall structure and its processes are revamped. Although companies can restructure for any reason, in most cases it is done when there are serious problems with the business, and to avoid bankruptcy liquidation.


Financial and Managerial restructuring may include designing organization chart, job descriptions, manuals and documentary flowcharts. Every functioning company controls assets, or economic resources that can be owned and are otherwise considered valuable. Most businesses also hold liabilities, which are debts or other obligations that arise as a result of past transactions. These economic factors will often have the most significant impact on the success or failure of that business, so financial restructuring is likely to focus on effectively managing assets and reducing liabilities.


Financial restructuring can also involve writing down assets that are overvalued. This change in value appears on a company's income statement as an expense, which lowers the company's income and, therefore, the amount of tax it owes. The company isn't actually losing any money except on the income statement; this method of restructuring can help reduce how much money a company owes without it needing to spend cash on repurchases. Most businesses go through a phase of financial restructuring at some point, though not necessarily to address shortfalls.  In some cases, the process of restructuring takes place as a means of allocating resources for a new marketing campaign or the launch of a new product line.  When this happens, the restructure is often viewed as a sign that the company is financially stable and has set goals for future growth and expansion.



A company may also need to restructure its finances if it merges with or acquires another company. When two firms merge, their debt and equity are also combined, and the resulting corporation may have a very different debt-to-equity ratio than either of the original companies. An acquisition may even be used as a form of financial restructuring, as a company with a low debt-to-equity ratio may target a business with a high ratio as a means of better balancing its finances.