Consider the prospect of revitalising your struggling small business and embarking on a new beginning. A Small business restructure (SBR) can effectively achieve that objective.

Financial trouble and insolvency is only one of the many challenges small firms are faced with in the modern economy.

Implementing a company restructuring strategy can serve as a viable solution to mitigate  these challenges.

What is a small business restructure?

The Small Business Restructuring (SBR) process was introduced in January 2021 by the Australian Government in the wake of the pandemic to give struggling yet sustainable small businesses a lifeline. This process helps small businesses restructure their debts by negotiating with creditors to extend payment terms, reduce interest rates or even forgive a portion of the debt.

To be eligible for the Small Business Restructure (SBR) process, a company must satisfy the following conditions:

• Have less than $1 million in liabilities, excluding employee entitlements.
• Must be operated as a company, which disqualifies sole proprietorships or partnerships.
• Possess sufficient funds to pay outstanding employee benefits before a restructuring plan is presented to its creditors.
• Must have filed annual tax returns. All tax obligations don’t need to have been paid, but they must be lodged.
• Must not have used the SBR or streamlined liquidation process in the last seven years.
• Must be insolvent or likely to become insolvent soon.
• Must not be under other restructuring or administration, including a DOCA (deed of company arrangement) or liquidation.

The directors of a company are required to appoint a Restructuring Practitioner (RP) who is a registered liquidator, who will work with the directors to create a Small Business Restructuring Plan (SBRP) to present to creditors. This plan will include any proposed changes to operations and payment terms for creditors. This plan must be presented to creditors within 20 business days from the day an RP is appointed, and creditors have 15 business days to accept or reject the plan.

How a small business restructure can help your business

The SBR process is designed to relieve pressure and create some time to overcome financial difficulties and give space to continue trading. Here’s how SBR can help your struggling business:

• Protection from legal action: When a small business enters the SBR process, it is granted temporary protection from legal action by creditors, including government agencies like the ATO. This helps the business to continue trading.
• Reduced debt pressure: Through SBR, businesses can negotiate with their creditors to finalise reduced or restructured debt repayments.
• Business continuity: Businesses undergoing the SBR process can continue trading in the ordinary course of business, preserving relationships with suppliers and customers.
• Simplified process: SBR is a streamlined and cost-effective process compared to traditional insolvency procedures such as liquidation or voluntary administration.
• Employee retention: By allowing the insolvent business to continue trading, the SBR process preserves jobs, ensures employees continue to receive wages and entitlements and reduces unemployment rates in the community.
• Preservation of business value: SBR can help maintain the value of the business, ensuring owners and stakeholders have a chance to recover their investments over time.

Warning signs you might need to restructure your business

Identifying warning signs that show your small business is struggling is important. This will help you start the process quickly and efficiently.

Below, we will take a look at some clear signs that indicate your business might benefit from SBR:

Decreasing profits

If your company consistently experiences a decrease in profits or has negative earnings, it might be heading towards insolvency or liquidation.

Having too much debt

Your company may be on the road to insolvency if it has accrued excessive debt and you cannot pay it off. If your business is heavily dependent on debt to remain functional, you could be entering a vicious cycle of accruing more debt on top of debt, waving a red flag that things within the company need to change for it to remain profitable.

Insufficient funds to cover expenses

If you’re having difficulty paying suppliers or employees, reviewing your finances and considering changes to improve the situation is important.

Trouble Adapting to New Market Conditions

If your business is falling behind competitors and struggling to keep up with industry changes, it may be time to restructure to stay relevant.

Legal Action or Creditor Pressure

If creditors are threatening legal action, it might be time for a company to restructure. Try not to panic too much in this situation, as outlined above restructuring can be extremely helpful.

However, businesses facing insolvency should seek out an expert to help them manage the complex process. Speaking to an expert like Rodgers Reidy will open up the conversation on what the various options are before choosing to liquidate the company or put it in voluntary administration.