Many struggling companies do not have a debt problem but an operations problem. Operational restructuring is harder than financial restructuring, but far more effective when the root cause is correctly identified.
When a company enters difficulty, the first reaction is usually to seek a financial solution: refinance debt, negotiate with creditors, find a capital injection. The financial symptoms — lack of liquidity, missed payments — are the most visible and urgent. But in my experience, most companies that reach financial difficulty do not have a financing problem. They have an operations problem that manifests financially.
The first task is to determine: is this a financial problem or an operational one?
Signs of a purely financial problem: operationally profitable but over-leveraged; healthy operating margins but financial costs absorb all profitability; the business model works, just the capital structure does not.
Signs of an operational problem: margins deteriorating over several years; client losses; costs growing faster than revenues; quality, delivery, or competitiveness issues; oversized departments or redundant processes; management team overwhelmed or inadequate.
Underinvestment. The company stopped investing in technology, training, and equipment years ago. Competitors who did invest now offer better service at lower cost.
Disorganised growth. Rapid expansion without adapting the organisational structure, resulting in duplicated processes, poor cost control, and decisions made without information.
Client concentration. The loss of one or two large clients representing a disproportionate share of revenue, leaving a cost structure sized for income that no longer exists.
Management team inadequacy. The team that worked at 10 million in turnover is not the right team for 40 million with complex problems.
Founder fatigue. After thirty years, energy and drive have eroded. Decisions are postponed. Problems are minimised. In many family businesses, this coincides with an unresolved succession question.
A well-executed operational restructuring follows a structured process: rapid diagnosis (2-4 weeks), identifying root causes and improvement levers; action plan (1-2 weeks), with quick wins, structural measures, and strategic investments; execution (6-18 months), taking difficult decisions and maintaining team motivation; and stabilisation and growth, consolidating new processes and planning the next phase.
Operational restructuring is harder than financial restructuring because it requires changing behaviours, not just numbers. Speed matters — every month without action means more losses and morale erosion. And communication is as important as action: employees in a struggling company know something is wrong. If they are told the plan honestly, most respond with surprising energy. An investment partner with operational experience can provide both the capital and the management bandwidth that restructuring demands.
Dirk Manuel Martens Jimenez Founder, Blue Mountain Capital
Founder of Blue Mountain
Over 15 years investing in Spanish companies with patient capital. Expert in business succession, corporate governance, and middle-market investment.
By Blue Mountain Capital
By Dirk Manuel Martens Jiménez
By Dirk Manuel Martens Jiménez
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