Capital restructuring means radical and thorough changes that are carried out in the material sphere and financial management of the enterprise. These changes are designed to improve the efficiency and effectiveness of the company's operations, its structure and operating principles. In addition, the main task of capital restructuring is to ensure financial liquidity, shape the capital structure and improve the efficiency of the company's assets. The effect of such restructuring is the internal changes of the company, which will enable adaptation to new conditions for the functioning of the environment, and thus to achieve successes and intended goals on the market (K. Baker, H. Kiymaz, 2011, p. 28).
Stages of capital restructuring
The process of introducing changes in the enterprise requires proper planning and assumption of its appropriate effect, due to the fact that it is a purposeful process. A very important issue of restructuring is the full awareness of the consequences, the assumption of a predictable activity that is free of randomness, responds to competition, brings something new and is ready for the challenges of the environment. Failure to see the need for change at the right moment and lack of ability to effectively and quickly resolve problems that arise due to poor company adaptation to external conditions may have an impact on the crisis that may affect the survival and efficiency of the company's operation on the market. As a result, the change is commonly associated with the standard in the process of continuous adaptation, while the ability to make changes is treated as an important factor affecting the survival of the company on the market and maintaining its good position. The need for capital restructuring applies to almost every enterprise wishing to achieve a competitive advantage on the market, regardless of its size or economic situation (I. Mavlutova, 2013, p. 33-34).
Capital restructuring as a process of radical change has its own special conditions. It is characterized by the need to adapt adaptation to changing external conditions, fundamental changes in the structure of the company striving to achieve goals, or causing permanent changes in a company with a very wide range. The specific features of restructuring changes that determine the whole essence of the process are (R. J. Recardo, 2013, p. 25-27):
- radicality- the state of the company before and after the restructuring process is very different,
- comprehensiveness- all changes include the financial situation of the company and areas related to its functioning,
- revolutionary- changes introduced through capital restructuring should be new and positively surprising,
- long-term- the effects of comprehensive restructuring are evident over a few years,
- plan- that is, accurate and early planning of activities,
- valuable- all changes involve a large financial and social effort,
- universality- applies to or applies to almost every company.
Obstacles to the capital restructuring process
Many factors affect the effectiveness of the capital restructuring process. Their knowledge is very important and allows you to define ways to remove or alleviate the effects, which improves the efficiency of this process. The main and most important obstacles that hamper the capital restructuring process are (I. Mavlutova, 2013, p. 36-37):
- uneven competition and price increase - it is mainly about raw materials,
- unprofessional financial condition - lack of financial liquidity, large indebtedness causing the crisis to grow and the process of making changes difficult,
- insufficient funds for investment and development - limited access to loans,
- mistakes appearing from budgeting - generating high costs,
- poorly functioning and insufficient controlling,
- poor planning or lack of it, contributing to the selection of faulty investments,
- errors in working capital management,
- scale of activity - which may exceed the company's financial capabilities.
- Baker K., Kiymaz H., (2011),The Art of Capital Restructuring: Creating Shareholder Value through Mergers and Acquisitions, John Wiley & Sons.
- Mavlutova I.,(2013)Business Restructuring as a Way to Improve Financial Position of Company, BA School of Business and Finance, Latvia.
- Osterman, P. (2000). Work reorganization in an era of restructuring: Trends in diffusion and effects on employee welfare. Industrial & Labor Relations Review, 53(2), 179-196.
- Recardo R. J., (2013), Ten best practices for restructuring the organization, Global Business and Organizational Excellence 32(2).
Author: Karolina Kurcz