How to Minimise the Cost of Restructuring in the Private Sector
The private sector is the UK’s financial beating heart, responsible for the employment of over 27 million people. It is important for much more than returning value to investors – which makes its recent endangerment all the more troubling for industry leaders and individual businesses alike.
In the face of profound hardships, brought on by a number of unique stressors, businesses are seeking change. However, change can come at a serious cost. If you are a business owner considering a restructure, what do you need to know?
The Economic Landscape
The economic landscape has not been favourable to businesses for some time, starting most obviously with the Covid pandemic in 2020-21. Reduced economic activity led to stagnation; in the post-pandemic environment, recovery was just beginning when new financial problems struck. Rising inflation has had dramatic impacts on both business expenses and consumer spending, squeezing private sector profits in the process.
While the outlook for 2023 is a little better, the economy is by no means out of the woods. A recession has been narrowly avoided, but inflation remains a costly issue.
Financial Costs to Restructuring
Businesses seeking to improve their standing in the face of prolonged slumps in profits also have to contend with the costs incurred by restructuring. Laying off staff, as we will discover later, can be expensive in both the short and medium term; relocating facilities and reducing output can have separate impacts on profits, while re-organising any business offering requires investment in material and equipment. What can be done to reduce costs?
Routes to Minimising Costs
Planning
A key route to minimising the cost of restructuring is an extremely simple one: planning. Any restructuring endeavour will come with some form of plan behind it, but those with the most comprehensive assessments of the situation, process and goals will naturally be the most successful. This might be done in tandem with expert advice from a third party, in order to build a strong case for specific decisions – and to formalise the process beyond reactivity.
Utilising Technology
In terms of the active elements to restructuring, technology is naturally one of the more effective tools available to the modern organisation. This is truer now than ever, with solid advancements in machine learning paving the way for unprecedented levels of automation. Even complex tasks can now be iterated and handled by AI algorithms, freeing time and resources towards essential business tasks.
Retention Over Severance
Often, and unfortunately, ‘restructuring’ is used as a euphemistic term to describe the laying-off of a percentage of the workforce. In certain scenarios, this is one of few guaranteed routes to saving a business from administration – but it should be by no means the first route a business tries to take.
Indeed, reducing your workforce can become more expensive in the medium term, particularly if you have to re-hire for certain roles. Retaining staff where possible is also a positive PR move, both externally and internally; with the goodwill of your employees behind you, you are more likely to succeed in your new refined structure.
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