Question

Companies trying to keep their business ongoing sometimes have to restructure their debts with creditors. Some emerge stronger than before while others complain of overwhelming negotiations and less than satisfactory results.

What do you believe are the reorganization advantages and disadvantages in debt restructuring?

Answer 1

Advantages of debt restructuring

If a business downsizes during restructuring, its operational cost may decline. For example, payroll expenses will be lesser if the business dismissed some of its employees. Similarly, outsourced operations are usually cheaper than in-house labor. Thus, the cost of maintaining operations within the retail network and company specifically tends to reduce with restructuring. When a business eliminates layers of management during its restructuring, communication and decision making can improve. Simplifying management reorders the organizational hierarchy of a company, opening the lines of communication and removing barriers to productivity. Finally, businesses restructuring to introduce new technologies may enjoy increased operational efficiency. For instance, records become more accurate and easier to access if a business implements a computerized filing system.

Disadvantages of debt restructuring

Though restructuring can promote productivity in some ways, it may detract from it in others. If a business downsizes during restructuring, the loss of skilled workers may affect productivity. Reassigning the duties of these workers to remaining employees often involves added training expenses, as well. Workers remaining after a downsizing often feel insecure about their jobs, which may lead to poor customer service and low worker morality. If a company's restructuring involves new technology or changes in employee responsibilities, productivity may suffer while employees learn their new roles. Small businesses undergoing restructuring should expect to invest time and finances in training their employees on new technology and systems.