The Director commenced trading the business in January 2023, transitioning from a sole trader. Operating in the construction industry the business provides architectural builder works, residential and commercial painting, heritage finishes and insurance works, across Tasmania.

After incorporating the Company, the Director attempted to diversify service offerings by expanding to rendering. The business grew rapidly with this diversification and by the end of 2023 the business employed over 10 staff.  Following a review of the business’s service offerings during 2024 the Director determined in 12 months the ‘rendering crew’ had only made a profit on one job and the decision was made to terminate the ‘rendering crew’ at the end of 2024, in an attempt to restructure the business to ensure its ongoing viability.

Debt

Total debt within this SBR was approx $340,437, with the ATO being the major creditor.

Background

Following the internal review of the business’s service offerings it was discovered losses were being made on contracted work undertaken for large local building companies, due to the contracts being fixed price and significant increases in supplies post COVID-19.

Staff productivity rates were also found to be extremely low and hourly charge out rates were not sufficient to cover fixed overheads of the business.

In late 2024 the Director was required to have surgery due to an injury, which left him unable to actively work in the business for a period of eight weeks, which put further financial pressure on the business.

The external accountant for the business also continued to use the sole trader Xero file, which led to the Director being unable to extract accurate financial information.

Proposal

The proposal provided for an initial upfront payment of $10,000 and monthly payments over a period of 30 months, making a total commitment of $76,000. Creditors voted to accept the restructure proposal which resulted in a 21.20/$ return.

Outcome

The business has continued to trade profitably and has taken various steps to improve its position moving forward and to ensure ongoing profitability, including but not limited to:

• Implementation of an online timesheet app to ensure staff productivity can be monitored. It is anticipated this will assist in reducing current wages costs from 71% to 87% of income to 35% to 49% of income;
• New charge out rates have been implemented and following the completion of all ‘old jobs’ quoted using previous rates and the completion of all ‘defect’ works;
• The Director has undertaken additional training to ensure he understands the financial side of running a Company.

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