Learning to bounce back: Restructuring an education & training business

The directors of an education & training business found out how?it’s do-able to undo with turnaround experts?with the?Small Business Restructuring?solution.

From the onset of COVID-19-imposed lockdowns and restrictions, the company was unable to meet its taxation liabilities due to tight cash flow.

The debt accrued and the main creditors involved were:

1. ATO for approximately $320,000.
2. Related company debt for approximately $230,000.

The historical ATO compliance record was solid and the ATO agreed to various payment arrangements. But the directors recognised the interest and other ATO penalties made the payment terms increasingly difficult to meet.

Confident of the company’s long-term profitability, the directors appointed Worrells as small business restructuring practitioner to seek creditor support to deal with the company’s core debt, which could not be met from company profits in the short term.

Other steps the directors took to ensure future viability:

• Shifting from in-house courses to digital courses using new technology.
• Reducing the need for contractors (generally more costly) and utilising the existing in-house teams.
• Reducing staff costs—reduced staff numbers.
• Converting a satellite office to online-only.
• Having regular meetings with the external accountant to review trading position as against forecasts.

The SBR process with the directors, company accountant, and Worrells:

• Ensure the company’s tax lodgments were up to date to the small business restructuring practitioner appointment.
• Finalise a (conservative) sales forecast.
• Formulate a cash flow forecast for the next 12 months.
• Create the offer’s terms (under the restructuring plan).

Offer under restructuring plan:

• 12 monthly payments from forecasted profits.
• Related company creditor would forgive its debt—increasing the creditor return to 21 cents for every dollar owed.

Creditors accepted the offer and the director immediately commenced payments under the restructuring plan.

As always, the sooner you seek options, the more you’ll have. The Teams at Worrells are ready to help. Our people know how to turn a business around, understand insolvency at the deepest level, and are always keen to find the right answers.

Business can be tough. Before you throw in the towel, we help you consider what can be done to turn around a business first, exploring restructuring options that can buy you valuable time to get back on your feet.