A Restructure Only Means A Temporary Setback To Your Business, And Not A Closure - Here’s What The Recent SBR Reforms Could Mean To Your Business
With the demanding conditions that have plagued the retail industry over the past twelve months, business owners should be aware of all the restructuring options available.??
COVID-19 has resulted in reduced foot traffic, store closures, the accumulation of legacy creditors and significant deteriorations in working capital positions as well as cashflow.
Even with the support of JobKeeper and other government initiatives buoying business ventures from early 2021 to now, many family and small businesses are sure to continue to struggle particularly in states with movement restrictions and stay at home orders.
Misconceptions Of Formal Restructures
The idea of restructuring your business or reaching out for external help can appear frightening and often seen as something to be avoided. Business owners are not on their own when dealing with the difficult conditions facing them in their short-term.
Nobody wants to see a business fail alone.
That’s why there are always options available to businesses. However, the longer a company holds off on making a decision, the more the business and the options available to it will deteriorate.
If companies and businesses can act early enough, their options include:
With the availability of these options and the right people involved, there is usually no reason why a financially distressed small business cannot survive the challenging times and thrive in the future.
All companies experience some form of distress at some time and often at no fault of their own especially given government mandated lockdowns. The ones that survive focus on cash, seek appropriate advice from trusted advisors at the right time and act on it expeditiously.
How A Business Might Survive Financial Distress
Using the voluntary administration process as a restructuring tool allowed Tuchuzy (a well-known retailer in Bondi) to successfully deal with legacy creditors, refocus on high margin product lines, and ultimately, the company continued to trade profitably with lower turnover and lower costs.
The key to Tuchuzy’s restructure was a ‘light touch’ administration to minimise costs and disruption to the business and closely working alongside the director to ensure the proposal submitted to her creditors would be acceptable than an immediate winding up scenario where no one wins.
There is a lot of flexibility and time afforded in the voluntary administration process.
The administrator can quickly reset the cost base by exiting unprofitable stores with minimum consequences, reducing the workforce, and focusing on only buying and selling favourable margin products.
Even when a liquidation becomes necessary, the process can be reasonably quick, fair and transparent if run effectively.
The secret is to overcome the general sense of failure and reputational damage accompanying restructures and approach restructuring experts early who will ‘unemotionally’ explain the available options and provide an impartial recommendation that aligns best with the individual circumstances.
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So What Do The New Small Business Restructuring Reforms Mean For You?
For a business with few creditors and a single location, the process of voluntary administration can be expensive and unnecessary.
Indeed, voluntary administration is often not appropriate for many small businesses due to associated financial costs and the hurdle accompanying a director relinquishing control.
The government has responded and offered an alternative. This alternative comes at a perfect time as directors are, regrettably exposed to personal liability for insolvent trading due to the pandemic.
The new small business restructuring (SBR) reforms offer a lower cost and far more simplified restructure process, critical for small businesses to continue to trade after government assistance such as JobKeeper ceased in March 2021. These reforms provide an essential new path that will assist many retailers and tourist operators in distress.
Though there have been only a handful of SBRs to date, and their effectiveness to save businesses is yet to be fully evaluated, it is an option to explore given the right circumstances.
Critical Questions Your Business Should Be Asking
The COVID-19 crisis has put a severe strain on many once previously good businesses. Though the government and their advisors are attempting to ensure that they do not collapse, directors and business owners need to be proactive and engage early for them to work – the key lesson is to take action.
Often businesses approach liquidators and advisors at the point where their financial problems have become too significant, and a liquidation/shutdown is the only option left. The timing of coming and asking for help can be the difference between a shutdown and the continuation of trading into the future.
With prior preparation and a good plan that considers all stakeholders, any business should be able to restructure and continue to trade successfully.
If your answer to any of the questions below is yes, you should seek immediate advice from a restructuring advisor.
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