Richard explains how to assess your business to prepare it for company restructuring – or reaching your Point B.

This company restructuring episode includes:

– How to define what’s essential, contractual and optional for your business.

– What information you need before making company restructuring decisions.

– Practical ways to end your contractual obligations.

– Using company restructuring to turn your business from a heavy cruise liner into a nimble speed boat. 

‘Company restructuring. What do you need for success?’ transcript:

Welcome back. This is Richard Simms from FA Simms & Partners. You’re joining us for the third part of our Kitchen Table Guide. You remember, this is our way of helping you analyse your business. Deconstruct, reconstruct it to get an idea of what you want to do with the business going forward. Really important things to consider.

What we’re looking at here is the essential, contractual and optional obligations that your business or company has. So imagine we’ve got this kitchen table in front of us. We’ve got the good bits on the left-hand side. We’ve got the bad bits on the right-hand side. We’ve got the ‘not quite sure’ bits in the middle. 

So now you’re saying to yourself, ‘well, what flexibility do we have about which part of that table do these bits go on to?’ Don’t forget also, we’ve got this…we’re constructing this table as your Point A. Don’t forget we’re going to look at your Point B where you want to as well. So this will be, in effect, what things you can change.  

Let’s take where we are today. Let’s take what we stand for at the moment, what we’re obliged to do at the minute. I’m going to take essential, contractual things. So what do you have to have to do the business you do? Just to recap that: what do you have to have? What does your business have to have in place? 

And this is where you may have a grey between good and unsure. Because you might say ‘actually, well, my business is best at about half the size, half the size it was. My business was better when it was smaller or my business needs to be bigger to make more profit.’ These are things that might be, you might have some bits that start in essentials and then some of them end up in the middle, in the unsure bit. Or things start in the middle and end up in the bad bit. 

So don’t be completely fixed on this. Do allow yourself a bit of flexibility on this side and maybe have, you know, I mentioned about having some strips of paper. You put some notes on, maybe move these bits of paper around, maybe have two bits of paper indicating different parts, those different things you do. 

The essential parts needed, of course, are what you need to run your business. That could be staff. It could be a piece of machinery. It could be a license you hold. It could be a number of things that are essentially your brand. They are things that make your business operate. You have to have those. 

Then you have contractual obligations. So you’ve got obligations that you’ve signed up to. Things you’ve committed to from a legal perspective. And you’ve said, ‘right, I’m going to do this for a three-year contract’. It’s not so easy to walk away from that. Now to come out of that contract you might need negotiation, you might need a number of other things to achieve that. But again, we’re not looking at how to break the contracts at the moment. But let’s focus on the fact that we need to know what our obligations are. 

If you’re like me, our business now is 40-odd years old. I’ve run the business now for 20-plus years. I know there are costs in our business we’re committed to that I don’t exactly know what they are in the detail I should do. I should have in front of me a list of all the things we’ve committed to, how long the contracts are. Now it’s not that we don’t know what they are just. I don’t know, at my desk at home. I can’t instantly press a button to see them.  

So I’ve got to make sure, I’ve got to look at myself and say “How do I help me – and you – have complete transparency of what I’m obliged to do?” I should know. 

Let’s take, for example, you have a franking machine in your office. That franking machine you’re committed to for a period of time. I know it’s for a period of time. I know it’s for a year or two, maybe it’s longer. I don’t know now how long it is. So I can’t plan ahead to my next step of the business in terms of, do we want to move to a, let’s say a digital post system? Do we want to stop the contract? Do I want to change the post in different ways? Do we want to switch to email? I can’t make that decision until I’m sure how long our contract’s for. How long we’re committed to, and how much it’s charging me every month.

What you can’t do here is afford not to have information in front of you. So use your kitchen table here to learn, to make sure you have all the information you need. You won’t physically store those contracts on the table of course, but you’ve got to make sure you know. You’ve got a note to say ‘I’ve got a contract for a photocopier’, ‘I’ve got a contract for a franking machine’, ‘I’ve got a contract for a digger’. Whatever it might be. You need to make sure you’ve got all the bits in place that you need to do that. Make sure you’ve got the options laid out. 

So, you’ve got essential stuff you have to have. Contractual stuff you’re obliged to do because you’ve contracted to that, as a company or individually. And you then have things that are your optional obligations. Optional stuff. Things that you choose to have, you could pull away from at any point in time.  

For example, you might have a premises you’re renting that might be on a very informal lease. You might be on a rolling one-month notice basis. You may not have committed to the long-term with that. You need to know: what can you chop and change? What can you walk away from? 

You might have some that sit in the middle lane. You might have some that you think you’re obliged to but there actually might be a means by which, with a bit of negotiation, you can break a contract. You could have a phone call, have a chat, have a discussion. See if there’s a way of breaking the contract if you need to. So that’s important. Again, you can’t reassess your business until you’ve got those three things in place: essential, contractional and optional obligations. That’s what will allow you to begin to see the flexibility you have, but also how flexible the business structure is.  

I look at it in a very simplistic way. Let’s say for example, it’s not a great example but I’ll give it to you anyway. Let’s say your business is on a boat, your business is on a cruise liner, a huge cruise liner. How long does it take to turn that ‘cruise liner’? It takes a long time. If your boat is a speed boat, it can change direction quickly. It can move quickly. You can change speed quickly. We have to ask ourselves how much of our obligations in the company, in our business, are things we’re fixed to. How many of those belong on a cruise liner and of those belong on a flexible, fast speed boat, because actually we can see then how easy it is for us to make changes. This is very important. We can’t make this decision until we understand this.  

Listing these things out: essential, contractual, optional. They’re the three areas we need to understand so we can make sure we can see how easy it is to change things. Okay. How much flexibility do we have? Really important from that side. So again, look at that and understand that again. This is about making our base in place here so we understand what our business looks like, what we can change. Do we have the right information in front of us. You might be able to go away, do some of this research, come back, pick it up and look at it again. 

Okay. Thank you very much indeed guys. We’ll speak soon.