Restructure sooner rather than later

When a business, whatever its size, has to face up to loss of customers, falling margins and slimmer profits it's time to cut costs and restructure. But can restructuring really improve the business ? It can buy time and cut costs. It can make staff more crisis aware. But does it really transform anything?

When a business, whatever its size, has to face up to loss of customers, falling margins and slimmer profits it's time to cut costs and restructure. But can restructuring really improve the business ? It can buy time and cut costs. It can make staff more crisis aware. But does it really transform anything?

In good times, restructuring often precedes a new trading strategy. It should become a routine issue, not left until late in the day when the impact of weak trading and profitability is already serious and job losses are unavoidable.

There is a lesson to be learned from the practice often adopted by large companies with several different trading operations. When the going gets tough, non-core parts are sold off, enabling management to concentrate on key strengths and look for new markets.

Look how Burberry has blossomed in the last few years by adapting its familiar raincoat check to umbrellas, luggage, women's wear and accessories.

Sainsbury's, under its previous chief executive, Sir Peter Davis, reduced its portfolio of businesses by selling off Homebase and some overseas interests, to focus on its core business. It rolled out new store formats and worked on under-performing stores. However, it failed to improve its supply chain and product availability fast enough.

There are other examples of companies restructuring, adapting to changing, often turbulent markets: Bass's move from beer to hotels; BT's demerging its mobile phone business; Kingfisher spinning off Woolworth; and ICI moving from commodity chemicals to less cyclical speciality chemicals.

Smaller businesses face similar radical challenges. New suppliers, new services or competing products appear on the market, market needs change and even loyal customers feel forced to go for the best possible deal.

Once your business shows the first signs of flagging, take a cold, clinical look at every part. Where are economies possible? Can any of your customers be offered better terms for bigger orders or faster payment, without damaging the business? Have you exhausted the market for your products or services? In the case of consumer products sold through major retail outlets, have you considered selling, a different range, direct, or through mail order and the internet?

Many small businesses, like larger ones, have discovered that re-inventing has to be a constant process. Often ideas come from spending more time talking to your customers and prospects - and to your own staff.

It might pay to bring in outside expertise. Interim managers may be an option where a short, sharp, look at the business by a professional might lead to economies and fresh thinking. Alternatively, talk to your accountants. They might suggest disposing of parts of the business that you may never have considered as a selling proposition; or merging part of the business with a similar size concern.

One piece of good news: the smaller business has a key advantage. It's more flexible, adaptable and fast-moving than its bigger cousins.