Is It Time to Consider a Company Reorganization?

The world's always changing, which means your business needs to evolve, too. One way to drive change is through a reorganization.

Through a company reorganization, you alter your organization's ownership, legal structure, business model or management. There are several ways to do so depending on your goals. Here's an overview so you can decide whether it's time to reorganize.

Key indicators it may be worth reorganizing

Whether reorganizing makes sense ultimately depends on your unique situation, but there are some common indicators it may be worth it:

• There's been a major change to your business landscape. A new game-changing technology, an emerging trade war, a shift in client demand, the rise of tough competitors or new government regulations could all mean that your business may need to pivot as well. You may need to reposition your business model or go through a turnaround, as well as reorganizing your management system.
• Your performance isn't what it used to be. If you're failing to hit your benchmarks and growth has stalled, it could be because your organization structure no longer works so your management and/or operations should be reorganized.
• You're seeing inefficiencies and employee struggles. If you're facing high turnover and low efficiencies with financial and employee performance, this could be a sign your systems no longer work. You may need to downsize or divest departments that no longer hit their numbers.
• Restructuring seems like a better option than anything internal. When your business is struggling and it doesn't seem like there are any clear internal solutions, restructuring could be the answer. It may be time to make a big move—like combining with a competitor in a merger, divesting struggling departments or trying to free up resources through a financial restructuring.
• You see a clear opportunity. Reorganizing could take your company to another level. You could open new markets with another brand/product, gain market share through an acquisition, or legally restructure to bring on new investors through an initial public offering, or IPO.

Company reorganization types

There's a range of different ways companies reorganize, and which one you choose depends on your business's unique needs.

Mergers and acquisitions

In both mergers and acquisitions, you and another company combine to become a new joint organization. A merger tends to be more of a partnership, whereas an acquisition is when one company takes over another. The end result is the same. You create one organization that then owns both companies' assets.

Asset divestment and spinoffs

You can also remove divisions from your company. With divestment, you sell off a division and its assets to another company, perhaps because it was underperforming and your business no longer wants to handle that market. In a spinoff, you turn the division into its own standalone company so it has a little more flexibility to operate, but your organization still owns it.

Management shifts

Another way to reorganize is by adjusting the management style in your organizational chart. For example, you could switch from a vertical system, with people reporting up and down through many different layers of management, to a more horizontal system, where there's less hierarchy and less of a reporting gap between employees and the top leadership.

Downsizing

If your organization is financially struggling, you may need to downsize your workforce, especially if one area is no longer delivering.

Legal and financial restructuring

You could change your legal and financial structure, like by converting your company legal structure to a C-Corporation as you prepare for an IPO. Or you could restructure your outstanding corporate debt to a longer payment term.

Business repositioning and turnarounds

Repositioning is when you try to change parts of your brand and business model, such as going from a subscription sales model to charging hourly consulting fees. A turnaround is when you completely overhaul your operations, products and services because changing conditions have put you in financial distress.

Ultimately, a company reorganization is a big decision that you'll need to research carefully. Make sure you have a trusted financial partner in your corner when deciding whether and how to undertake this major step.

Originally published July 8, 2021