Accountants: How Small Business Restructuring (SBR) can provide a lifeline for business owners after EOFY

As small and medium business owners prepare for the new financial year, many are grappling with the challenges of mounting debts amidst trading difficulties and enduring economic uncertainties. This is where the Small Business Restructuring (SBR) process can provide struggling businesses with a much needed second chance.

Small business debt restructuring

The SBR process, introduced by the Australian government in January 2021, is designed to help viable small businesses with liabilities under $1 million restructure their debts and continue trading. In the new financial year period, this is particularly relevant as businesses assess their financial position and explore options for managing their debts.

Through a simplified debt restructuring process, small businesses can find some breathing space and develop a plan to regain control of their enterprises.

Industry overview

Australia’s small business sector has been hit hard by the economic fallout from the COVID-19 pandemic. Small businesses account for 97.4 per cent of all businesses, employ over 4.7 million people and 41 per cent of the business workforce, making it Australia’s biggest employer and added nearly $590 billion of value in 2022-23, representing approximately 33 per cent of Australia’s total GDP.

However, many of these businesses have faced significant financial challenges, with the ABS reporting that 35 per cent of small businesses experienced a decrease in revenue in the first half of 2021 – a situation that we see business owners still contending with.

On top of this, small businesses are suffering from a debt crisis. Australian businesses, for example, owe over $50 billion in collectable tax debts to the Australian Tax Office (ATO) and 65 per cent of this debt is attributed to small businesses.

The introduction of the SBR process is a recognition of the vital role small businesses play in the Australian economy and the need to provide them with support during difficult times.

By allowing small businesses to restructure their debts and continue trading, the SBR process aims to prevent unnecessary insolvencies and job losses, which in turn, will have positive resonating effects on the strength of the economy.

A SBR case study

Let’s consider the case of a small retail business that has been struggling with cash flow issues due to the impact of COVID-19 lockdowns. This business has accumulated significant debts, including rent arrears and outstanding supplier invoices and is finding it difficult to meet its ongoing expenses.

Under the SBR process, the business owner can work with a qualified small business restructuring practitioner (SBRP) to develop a restructuring plan. This plan may involve negotiating with creditors to reduce or defer debt repayments, as well as implementing cost-cutting measures and exploring new revenue streams to ignite future-forward growth.

SBR advantages and eligibility considerations

The SBR process offers several advantages over traditional insolvency options, such as voluntary administration or liquidation, for example:

     • Directors retain control – Under the SBR process, businesses can continue trading under the control of its directors, rather than being placed in the hands of an external administrator. This can help to minimise business disruption, as well as maintain customer and supplier relationships.

     • Simplified debt restructuring – The SBR process is designed to be faster and more cost-effective than traditional insolvency processes. The restructuring plan must be developed and voted on by creditors within 20 business days, reducing the uncertainty and expense associated with prolonged administration periods.

The SBR process, however, is not suitable for all businesses. To be eligible, the business must:

  1. Be operating as a company (Pty Ltd)
  2. Have paid all employee entitlements and lodged all outstanding tax returns
  3. Have liabilities of less than $1 million
  4. Be able to demonstrate that it is viable and has a reasonable prospect of continuing to trade successfully.

Comprehensive solutions for small business owners

Accountants play a crucial role in assisting small business owners as trusted advisors, guiding them through financial and cash-flow obstacles.

Our team of business restructuring specialists at AVA Advisory offer guidance on the SBR process and can help your clients decide if it’s the right choice for them.

When accountants collaborate with a skilled SBRP, they can assist their clients in creating a restructuring plan that optimises their likelihood of recovery, whilst reducing the possibility of insolvency.

The value of working closely with other business advisory professionals, like lawyers and insolvency practitioners, is undeniably important in order to carefully consider and carry out all aspects of the restructuring process.

Supporting small business resilience in FY25

As accountants, you understand the importance of supporting small businesses during the post-EOFY period. Our goal is to help them come out of this challenging period stronger, more resilient and in a significantly improved position.

Our role as advisors is vital in helping small business owners navigate through the challenges they may face and turn their debt situation around.

We are here to offer expert advice and guidance on the SBR process to help small and medium businesses make well-informed decisions about their financial future.

Get in touch with our team at AVA Advisory on 1300 181 220 to schedule a confidential and obligation-free consultation.

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