Understanding the Small Business Restructure process
The Small Business Restructure is designed specifically for eligible small businesses in financial distress. Through this process, businesses can work with an insolvency advisor and a Small Business Restructuring Practitioner (SBRP) to create a debt repayment plan. Once approved by creditors, the plan allows the business to pay off its debts while still operating. The SBR process is less complex and costly than traditional insolvency procedures, making it an attractive option for many SMEs (small and medium enterprises).
However, while SBR can offer a fresh start, it’s not a universal solution for every struggling business. Here’s how to determine if it might be right for your business.
Key considerations for the Small Business Restructure
Before deciding on a Small Business Restructure, you need to assess if your business meets certain eligibility criteria and consider whether restructuring aligns with your financial goals. Here are some key factors to keep in mind:
Eligibility criteria
The SBR process is only available to businesses that meet specific requirements set by the Australian Government. To be eligible:
- • Your business must have total liabilities of less than $1 million.
- • You must be up-to-date with your tax lodgements.
- • Employee entitlements, such as superannuation and wages, must be paid up to date.
- • The directors must not have been involved in an SBR process or simplified liquidation in the previous seven years.
If your business does not meet these criteria, the SBR may not be an option, and alternative debt management or insolvency processes might be more suitable.
Cash flow and debt repayment ability
One of the primary purposes of the SBR process is to create a manageable debt repayment plan that will allow the business to continue operating. However, this requires a realistic expectation of cash flow in the months to come. If your business’s revenue is declining or cash flow issues are severe, it’s crucial to consider whether restructuring will realistically allow you to meet repayment obligations.
If you expect cash flow to improve (for instance, through seasonal revenue boosts or new contracts), then SBR could help you stabilise the business. But if cash flow problems seem ongoing with no immediate solution, restructuring might only provide temporary relief, and other insolvency options may need to be explored.
Long-term viability of the business
Restructuring can only succeed if the business has a viable future. This means taking an honest look at the potential for recovery. Is your business in a temporary downturn, or are there more systemic issues affecting your ability to generate profit? If the financial challenges are short-term and the business model is sound, restructuring might help you manage debt and weather the storm.
However, if the industry is shrinking, market conditions are unfavourable, or the business is no longer competitive, restructuring may only delay the inevitable. In such cases, it may be wise to consider other options, like winding down operations or exploring liquidation.
Control over business operations
One of the advantages of the SBR process is that it allows directors to maintain control over the day-to-day operations of the business. Unlike voluntary administration, where an administrator takes over, SBR lets you continue running the business while the restructuring plan is created and executed.
If you value the ability to keep managing your business during a challenging period, SBR may be preferable to more traditional insolvency solutions. This control can be empowering and allow you to work towards a successful turnaround while maintaining relationships with customers and suppliers.
Signs that Small Business Restructuring might be right for you
Now that you know what factors to consider, here are some common signs that the SBR process may be suitable for your business:
Sign 1: Temporary financial strain
If your business is going through a temporary rough patch—like seasonal dips in cash flow, one-off expenses, or a short-term drop in demand—SBR could help you regain stability. Businesses with strong long-term prospects and only temporary financial issues can benefit greatly from restructuring.
Sign 2: Strong customer demand but cash flow issues
If your business has strong customer demand and a competitive edge in the market but struggles with cash flow, SBR could provide the breathing room needed to get back on track. Restructuring can help you manage debts while capitalising on your market position.
Sign 3: Desire to maintain control
If you want to retain control of the business throughout the restructuring process, SBR offers a unique advantage. Unlike voluntary administration, which can take away management control, SBR allows you to stay in charge, preserving your vision and control over operations.
Sign 4: Supportive creditors
Creditors who are willing to negotiate can be a major asset in a successful restructuring. If you have a history of cooperation and your creditors believe in the viability of the business, SBR may be the right choice for managing debts without compromising relationships.
Next steps in proactively managing your business
The Small Business Restructure process offers struggling Australian SMEs an opportunity to reorganise debt while continuing to operate, making it a powerful tool for businesses with long-term potential. However, it’s essential to consider eligibility criteria, cash flow stability, long-term viability, and creditor relationships before deciding if SBR is right for you.
If you’re considering a Small Business Restructure, consulting with an insolvency advisor can provide clarity and guidance tailored to your situation. With the right strategy and support, restructuring can be the first step towards a sustainable recovery.
Contact AVA Advisory Today
For a confidential, no-obligation consultation, contact AVA Advisory at 1300 181 220 or book a time through our online platform. Let’s work together to ensure your construction business has the resilience to thrive in challenging times.
