"A restructuring of an organisation is always a difficult time and delicate." Toto Wolff, F1 Team Manager Source, "You need the right balance between data and gut feeling."

In business you should work by priority. Start with what is key to continue business: cash, if you haven't got cash or you need to file chapter 11 it may get far harder to continue to do business. The second component is time, if you have a cash burning business, your time might be limited.

I come from the Tech industry but it is similar to other industries. Your business is determined by a few parameters on your P&L:

I know it is simplified and assets, investments, amortization, depreciation, tax and interest rates are important, but restructuring a business starts with the big picture. Get your P&L clean, build a forecast and get to your real cashflow prediction:

1. How much cash is available?
   
2. What is the cash burn rate (including tax payments and one offs)?
   
3. Do I have the ability to optimize the cash burn rate or change the cash position short term (bank debt, capital increase, reduce overdue, stretch payables)?
   

The outcome is your runway or how much time do I have to either take off or crash (Gate one). The result will determine your course of action in timing and impact. If you have enough cash or backing to make it a smooth transformation - great but in most scenarios your stakeholder may be not be as patient.

After you have understood timing and related limitations, have a look at revenue which by far is one of things people forget about and start with costs. You need to get an understanding of the forecasted revenue stream and if this is contracted recurring revenues or transactional revenue which is on risk due to the ability of the organization to create order entry. Obviously the larger the share of contracted or recurring revenue is, the better and more solid is your starting point. If revenues are on risk or going down, get to a judgement on the reasoning: lead generation, sales execution, pricing, product, market demand and mark down action items to address. Eliminate wishful thinking from the forecast and ask for real commitment of every sales person.

Starting with revenue gives you a better perspective on your cost measures. Can you actually produce the products or services in a profitable way? You can compare your gross profits to the industry and see if your are performing fine. Otherwise you need to review your direct costs. This is either manufacturing cost, purchasing of material or services, your personnel cost or other costs. 

Producing products will be driven by purchasing and the right sourcing strategy. The optimization of your production cost is highly dependent on your industry hence we can only have a high level view. Personnel cost will discussed further and the utilization of assets is something you can consider shift models.

In services you may have three line items: personnel cost, other costs and third party costs. Your own personnel cost come along with organizational structure, how much of your people are billable or direct related to create revenue. Review the ratio of billable and non billable headcount. Reduce unnecessary non billable cost such as management by defining a span of control to be adopted or any staff which is non productive. Understanding your ratio of billable and non billable headcount, have a look if inefficient processes reduce the optimization of more outcome per headcount and note further actions to improve. 

Have a look into utilization in general and understand if you can improve utilization of assets or people. Many times on the people side there are internal tasks recorded to show utilization but this isn't billable by definition hence you need to reduce and fence internal tasks, optimize and best eliminate them. In complacent organizational cultures you find quite good utilization but if you break it up to the ones which can really generate revenue, you find a lot of waste in processes and tasks. Eliminating waste will determine the need of assets and and number of people going forward to generate the top line you have forecasted. 

That has a direct impact why you actually source personnel externally, if you can fully utilize an external resource, it should be cheaper to hire such a headcount. Hence revisit all external suppliers if this can't be done internally by your optimized utilization.

You see that processes determine the need of HC, the optimization of utilization, the elimination of waste. Obviously the cost per headcount is the a second review topic after the quantity. Don't miss the skills and qualification of your team, just looking at cost and quantity is not good enough. Great skills are normally sellable at higher rates, being more productive and pay out.

The other cost are normally not the biggest part of the issue but there are buckets of saving potentials such as facilities, communication cost and finally required travel and entertainment cost.

If you have gone through your revenue forecast and direct cost projections, you figure out if the business is capable of producing decent gross profits benchmarked with the industry. that is a second gate to succeed after your cash projection.

Your SG&A need to be paid by your gross profits. Have a good understanding of the industry benchmark of SG&A spendings. See if you can match those and have a look into your processes how do you generate leads, manage opportunities and close deals. In many cases the cost per deal is too high because you still use outdated sales approaches such as cold calling, wining and dining. Today digital marketing can be used in all B2C and B2B businesses to generate leads effectively and improve sales costs per deals significantly as you are far more precise in addressing relevant customer segments hence reducing costs. Do not save too much marketing and sales, as this is always easy, but you need to generate and commit to your revenue forecast.

Same applies for your administration processes, have a look at industry benchmarks and understand if you have digitized your processes such as procure to pay or lead to order or automated billing. Did you have your HR processes turned into end to end digitized processes to eliminate manual work such as an applicant portal with workflows or employee and manager self service for HR tasks. That does not only save money but is easy and convenient to use and increases motivation. The user experience will improve.

Don't forget general management, have a look that you have great talents and skilled people on the team and pay them well as you have a tough hill to climb if you restructure a business but have a look in span of control, roles and responsibilities. You may be able to reduce whole levels of management and concentrate execution at the right level by an optimized organizational setup. Eliminating a level of management brings quite significant savings and speeds up execution by reducing complexity.

Gate three is if your gross profit after all optimizations will carry your SG&A costs. If this is a positive tick in the box. You have a great chance to succeed technically.

Now the tricky bit comes to play, you need a couple of things to execute successfully on a good plan:

1. Have a good communication plan and team to explain your restructuring plans and get as many people on board as you can. Give regular updates on the progress, outcomes and projects. Motivation of the teams is key to have a positive momentum.

2. Have a program office that governs the change projects with the responsible project managers and reviews the progress, outcome and road blockers. Create a cadence of regular reviews such as every two weeks to keep the momentum and execute swiftly. Change if it is required. Make managers or executives sponsors for projects to link accountability to people.

3. Focus on priorities, don't start too many projects in parallel. Focus on the most important ones with the biggest impact first. Have a look at dependencies and manage those. Start finishing and stop starting may be a good advice at a certain stage.

4. Keep your stakeholders in the loop and check if you have their full support otherwise you are in a lost position.

5. Finally have a regular review if all parameters of your plan come together: cash, time, revenue, cost, profits and spirit of the teams.

Restructuring of businesses is an exciting, tough and stressfull job but really wonderful if you delivered something exceptional with your team. It only works with a great, talented and skilled team.