Business growth requires not only sound business decisions but also efficient legal, financial and organisational processes. Solutions that worked well at the beginning of a business’s operations may no longer be sufficient as thebusiness grows. This does not necessarily mean that the company is operating incorrectly. Often, individual processesare functioning, but they no longer fully meet the company’s current needs.
That is why it is so important to regularly review how a business operates, its existing contracts, settlements withbusiness partners and financial management practices. Company restructuring provides a particularly good opportunityto conduct such a review, allowing the business to assess its operations from a broader perspective.
Why is it worth organising your business before problems arise?
In many companies, rules governing cooperation, procedures and contractual arrangements develop gradually as thebusiness grows. Some emerge from day-to-day practice, others from established habits, while others are introduced inresponse to specific business situations.
Over time, however, a company may continue to rely on arrangements that have not been reassessed, even though thescale of its operations, the structure of its contracts or its level of risk has changed.
This may concern, among other things:
- Contracts with clients, suppliers and subcontractors;
- Procedures for securing and recovering receivables;
- Payment terms and settlements with business partners;
- Monitoring of retention monies and other forms of security;
- Liability for obligations and the allocation of responsibilities;
- Document workflows and cooperation between the legal, accounting and finance departments;
- Decision-making procedures and risk management.
The problem is often not that these areas are failing to function at all. Rather, they are operating, but not quite aseffectively as they should.
A business may continue to execute contracts, achieve good financial results and meet its payment obligations on time,while still failing to make full use of its financial resources or remaining exposed to risks that have not previously beenidentified.
This is precisely why it is worth reviewing how a company operates before any shortcomings translate into actuallosses or disputes.
Transforming a civil law partnership into a limited liability companyas an example of broader change
The transformation of a civil law partnership (spółka cywilna) into a limited liability company (spółka z ograniczoną odpowiedzialnością – sp. z o.o.) illustrates particularly well why a change in legal form can provide an opportunity to reorganise the entire business.
For a growing company, the transformation process involves reviewing documentation, account balances, the financialposition and existing legal relationships. It is an opportunity to identify interdependencies that may go unnoticed duringthe day-to-day running of the business.
For example, a construction company may execute successive contracts for years without paying particular attention tothe total value of retention monies withheld by general contractors. Each deduction is treated as a standard element ofan individual contract, but only when all receivables are analysed together does it become clear how much of thecompany’s capital remains unavailable for its current operations.
Similar situations may arise in other industries, particularly in relation to settlements with business partners, contractualsecurity, long-term receivables and the costs of financing business operations.
Restructuring does not automatically resolve these problems. However, it creates an opportunity to identify them,assess their significance and decide which corrective measures should be implemented.
Retention monies – an example of a financial issue that is easy to overlook
In the construction industry, it is common practice for general contractors to withhold a certain percentage of asubcontractor’s remuneration as security against claims related to the performance of construction works.
If a contract provides for the retention of 5–10% of the remuneration, an individual amount may not appear particularlysignificant. The situation looks different when a company is carrying out multiple contracts and the security depositsare not returned until several months or even years later, often subject to additional conditions.
In such cases, it is worth determining:
- The total value of the retained funds;
- Which amounts should already have been returned;
- Whether there are grounds for refusing repayment or making deductions;
- What steps should be taken to recover the receivables;
- The cost of financing capital tied up with business partners.
This matters because a positive financial result does not necessarily mean that a company has sufficient cash available.Some of its capital may be tied up in receivables that have not yet been recovered.
A similar review should also cover other areas affecting liquidity, including overdue invoices, contractual security andsettlement arrangements with business partners.
A change in legal form is an opportunity to review existingarrangements
Company restructuring should be viewed not merely as a formal process, but also as an opportunity to plan thebusiness’s future development consciously and strategically.
It is worth using this opportunity to assess whether existing legal and organisational arrangements still meet the needsof the business.
This may involve updating contracts, organising settlement procedures, introducing systems for monitoring receivablesor clarifying responsibility for individual processes.
It is also important to analyse the tax and financial implications of the planned changes. For this reason, restructuringshould be prepared in cooperation with the people responsible for the different areas of the business.
The objective is not to change everything that has worked well so far. It is to make an informed assessment of whicharrangements are appropriate and effective, which need improvement and which create unnecessary risk.
Why should legal and financial matters be analysed together?
Legal matters, finance and accounting do not operate independently of one another within a business. The terms of acontract may affect the ability to recover receivables, settlement procedures may influence liquidity, and the absence ofappropriate processes may make it more difficult to identify risks.
For this reason, analysing just one area may not provide a complete picture of the company’s situation.
A properly prepared business review should take into account:
- Legal aspects – contracts, security arrangements, liability, claims and procedures;
- Financial aspects – liquidity, receivables, financing costs and business risk;
- Accounting and tax aspects – accurate settlements, record-keeping and the implications of planned changes;
- Organisational aspects – allocation of responsibilities, document workflows and monitoring the fulfilment ofobligations.
This approach helps not only to reduce risk but also to improve the day-to-day operations of the business.