Business and financial restructuring plans

Economic activity is characterized by its cycles: good times are mixed with phases of recession derived, in part, from excesses in markets during expansionary periods. Therefore, economic crises are recurrent and require proactivity and anticipation on the part of company managers.

A process of this type originates when there is evidence within the company a reasonable doubt about its ability to meet the commitments made with creditors. The initial step that the company must take is to communicate to all its creditors the real situation of the company. It must also give way to a negotiation that prevents the early maturity of debts due to missed deadlines. From here on, an extensive and arduous financial and legal work is triggered that can hardly be carried out internally by any company.

The financial restructuring of a company is a complex operation. Even if the property has had some previous experience in crisis situations, it is not advisable to get involved in the process as there is a risk that it will neglect the daily management of the business. For this reason, the entrepreneur must know how to choose a good advisor with experience, recognized prestige, global knowledge and management capacity.

The fundamental objective is to demonstrate to creditors the existence of a viable project with a track record in the short and medium term, with the support of shareholders.

1. The mandate: basic agreement between client and advisor, which commits the advisor and defines the services he must provide and his obligations.

2. Previous work: in-depth analysis of the company's current situation and its recent evolution: balance sheet, income statement and cash flow. It must be completed with meetings with the management team and internal strategic reflection, as well as understanding the sources of business and cash.

3. Preparation of the business plan: updated and including the company's current situation. It should include 2-3 year projections that reflect expected developments. It must also incorporate operational improvements, business redefinitions or the development of alternative lines of activity to provide comfort to creditors.

4. Development of a financial strategy based on the updated business plan. Depending on the results of the analysis, we will have different alternatives for negotiating with creditors (extending the deadline, establishing withdrawals, lack of principal and/or interest are among the most common). Even the possibility of applying for additional funding.

5. Identification of additional guarantees after a reflection exercise with the company's property. The most common transfers today are capital increases by current partners, the pledge of assets or extension of guarantees, among others. The inclusion of a partner in the company's shareholding can also be considered.

6. Preparation of a memorandum containing all the aspects mentioned in the previous points.

7. Submission to creditors and negotiation of the memorandum. At this point, the consultant has extensive knowledge of the company and has been actively involved in the entire process. Negotiation is a complicated process and even more so if it is a transaction as thorny as a restructuring.

Having a powerful legal service is another of the basic requirements in this phase. The reason is that restructuring contracts are characterized by a high degree of sophistication. Therefore, whoever needs to carry out a process of financial restructuring of their business must be very selective in choosing a good advisor to minimize risks and maximize results.