Over time, businesses change, whether this is through growth, changes in management, changes in geography, products or services or accumulation of assets.

Reviewing your business structure and understanding why companies reorganise is important. Undertaking a business reorganisation can be used to split off parts of your business and can help to minimise risk, prepare for sale and create efficiencies.

In this blog we will look at the difference between reorganisation and restructuring and consider the reasons why you may decide to reorganise your business structure.

Business restructuring vs business reorganisation

Group reorganisations can often be small changes to a structure of a business for example moving assets around the group, creating a holding company, moving a subsidiary company’s position within the group, or possibly a transfer or reorganisation of debt.

Company restructuring often means changing the structure of the company completely. For example, financial restructuring is where significant changes are undertaken by a company to modify and reshape operations with the intention of reducing debt, increasing efficiency, and improving the business going forward.  A business restructure is most common in companies facing financial difficulties.

In this blog we are covering business reorganisation only, the reasons why you may consider it and the benefits a reorganisation can achieve and some unexpected outcomes you may not realise.

Demerging and splitting a group structure

As businesses evolve, things change. Demergers are used to separate out various parts of a business and are undertaken for a wide variety reasons. It may be that parts of the business have different objectives or different shareholders have different goals. It is worth considering creating separate companies to:

• Reduce or better manage risk.
• Prepare the company for sale.
• Accommodate changes in ownership or management.
• Pass on the company to family members.
• Allow JV partners to separate.
• Separate business streams which may lead to better profits.
• Separate assets such as property before disposing of the trading business.
• Introduce an employee share option scheme.

Rationalising your business structure

As a business grows its structure can get unwieldy and inefficient, with structures that are no longer fit for purpose wasting time and resources. Reviewing, consolidating or simplifying and rationalising can achieve many benefits.

Rationalising or ‘tidying up’ your business structure can help to save money, resources and simplify your processes.

It is worth considering bringing parts of your business together to:

• Achieve corporate cost savings – whether through management time, compliance costs or gaining economies of scale.
• Assist in obtaining investment.
• To prepare your business for sale and maximise value.
• Save internal resources in managing multiple entities.
• Gain simplicity – whether in reporting, management, or governance.
• Optimise business integration following an acquisition.
• Simplify balance sheets and inter-company loan arrangements.

What does a company reorganisation involve?

This will very much depend on what you are trying to achieve by reorganisation of your business structure or if there is some significant event about to happen to the company. A restructure may involve:

• An analysis of your current structure and business strategy.
• Review of business reorganisation options to achieve your goals.
• Creation or consolidation of companies.
• Changes to share capital.
• Refinancing debt.
• Obtaining HMRC clearances for any changes to be made.

Creating a new holding company or new subsidiary:

If you hold your core assets, including cash reserves in your trading company or on one single balance sheet, your business will be open to a degree of commercial risk. Creating a group structure enables you to ring fence assets for example, in a holding company which can help protect them from the commercial risks of trading companies within that group.

Refinancing loans and other borrowings

Refinancing loans and other borrowings involves taking out a new loan to pay off an existing loan. This can help you to achieve:

• lower monthly payments
• a longer or shorter repayment term
• a more convenient payment structure
• minimise financial risk.

When should I reorganise my business structure?

Reviewing your business structure should be integrated in your business strategy and management as a matter of course. However, thoughts about company structure are often tackled when a significant change is anticipated in your business. These significant changes could be:

• When a business is looking at mergers and acquisitions in order to grow. Combining businesses can help integrate the operations and streamline processes.
• To reduce risk in your business and protect assets, for example, when you purchase property.
• As your business grows and you expand you may consider reorganising to split different lines of the business into their own entities for easier management and visibility of performance or as you take on new contracts or geographical territories.
• If you are considering exit and succession, you may look to reorganise to sell or pass on only some parts of the business.

Summary

Reviewing and reorganising your business structure can be a proactive measure for business owners seeking to achieve their long-term goals. By realigning the structure of your business, you can increase its efficiency, competitiveness, and overall success.

Whether driven by the need to save costs, increase profit,  reduce risk, or as part of exit planning; reorganising your business structure could be right for you. As with all significant decisions, it is important to talk your options through with someone who understands the context and is able challenge your assumptions and help you assess the implications.

How Barnes Roffe can help

Here at Barnes Roffe, we have worked with companies across a wide range of sectors to reorganise their structure whether it is straight simplification, de-merging or consolidation to achieve a wide variety of objectives.

We will work with you to undertake a thorough analysis of the current business structure and objectives of the business, followed by a review of the options that may be available. Our experts will then work with you to determine the best course of action and implement the changes necessary to achieve your desired result and in the most tax efficient way.