Signs Your Small Business Needs Restructuring

As any small business owner knows, running a business is a dynamic process. There’s so much going on daily and you’re dealing with the minutiae of running a business, that it can be easy to miss those bigger signs your business is in trouble. But it’s important to always pay attention to certain signs that your small business is struggling.

In some cases, a Small Business Restructure (SBR) can help your business when it is in financial dire straits. In this article, we’ll look at the key signs that your business is facing insolvency, and how an SBR can help alleviate some of the pressure.

Signs A Business Needs Restructuring

Small business owners must be adaptable and keenly focussed on the financial and operational health of their company. With so many moving parts, it’s easy to run into difficulty in one or multiple areas of the business, and signs may indicate that the business needs a strategic overhaul. Recognising these problem signs early can save your company from prolonged struggles or insolvency.

Overdue Taxes & Lodgements

Being behind on tax lodgements, or being unable to pay taxes owed, is a sure sign that your business is in trouble. It may be that your business is generally disorganised and you are not prioritising keeping tax payments up to date. It may also be that you have needed to use money designated for tax, for other purposes as needs arose, and come tax time, you don’t have the funds available to settle matters with the ATO.

Legal Issues

If your business has been involved in legal proceedings, this can really drain finances and distract you from running the business. This can potentially lead to insolvency.

A Decline in Revenue

When revenue is consistently declining, you may need to proportionally reduce expenses and consider a small business restructure to deal with accumulated debts. You will recognise declining revenue in:

  • Poor sales performance
  • Reduced reserves of cash
  • Inability to pay creditors
  • Sleepless nights for the business owner

Downward revenue can be caused by a range of factors, including:

  • Declining customer base
  • Lack of need for your product or service
  • Stiff market competition, or failure to keep up with the market
  • Poor customer services
  • Outdated products
  • Fruitless sales strategies.

A small business restructure can assist your business by assessing your likely potential to run profitably in the future. If it is deemed that your business has a good chance, then an SBR can help you to continue to operate, while arrangements are made with your creditors to pay off your debts, often at a reduced amount.

Out of Control Expenses

If the expenses related to running the business outpace earnings, it may signal that either your small business is not viable, or that a financial restructure is needed. In these circumstances, relationships with suppliers may become strained, causing damage to your company reputation. It is also difficult to focus on business growth, when your business is clearly not growing. A small business restructure can help to reassure investors and creditors that you are trying to resolve issues relating to expenses. It can also ensure that payment arrangements are made with creditors that allow you to continue to operate into the future. In the meantime, your business will likely need to identify areas to optimise processes and reduce costs, as an additional way to reach financial stability.

Excess Debt

When business debt is significant, it means you are unable to work on growing the business, as you are too focused on the debt. Managing debt and creditor demands can also drain vital resources as well as energy from your business. So if your business is focused on servicing debt rather than on customer engagement and innovation, it is likely time to contact a small business restructuring practitioner, who can help you to set up a structured debt repayment plan. This can help you to manage liabilities while allowing your business to continue operations. It can also help you to get to a point where you can plan for the longer term growth of your business.

Inefficient Operations

When there are slow or ineffective processes in a business’s operations, miscommunication between staff and/or staff and customers, delivery errors or non-compliance with regulations, then productivity and profitability are undermined. Brand reputation can be damaged. These inefficiencies not only waste time and resources but can also harm your brand’s reputation. Operational restructuring, in conjunction with small business restructuring, can help to address these issues.

Cash Flow Concerns

Having the available means to operate a business is essential. If there are recurrent issues with cash flow, operations may be disrupted. You may miss payments to suppliers and relationships may become strained. Small Business Restructuring may be a way to relieve ongoing cash flow issues that have resulted in debt.

Challenges Gaining Access to Credit

When your business is in financial trouble, you will likely find it difficult to access new avenues of credit. And this credit may be essential to keeping operations running.

Losing Competitive Edge

If your business struggles to keep up with competitors in innovation, pricing, or quality, it may be losing its competitive edge. This can result in declining market share and reduced relevance in your industry. A restructuring plan can include market analysis, strategic partnerships, or process improvements to restore your competitive position.

Poor Regulatory Compliance

Non-compliance with industry regulations can lead to legal penalties, reputational damage, and operational disruptions. Ensuring compliance through restructuring can protect your business from potential risks while building credibility with stakeholders.

Employee Challenges

High turnover of employees, and/or low employee productivity or morale can be a result of a disorganised business structure or an inefficient workplace. Often, when a business is in financial trouble, business owners and managers don’t feel they have the time to work on employee relations, as they are struggling with other issues. Going through a small business restructure can restore confidence in the viability of a business, and relieve external pressures that arise from owing large debts. An SBR can serve as a relief valve, giving business owners the chance to focus on their employees, rather than their financial woes.

How the Small Business Restructure Scheme Can Help

The Australian government’s Small Business Restructuring (SBR) scheme is an initiative aimed at helping small businesses that are facing financial challenges. The scheme provides these businesses a lifeline to address their financial difficulties and implement a streamlined recovery process. Through the SBR process, businesses can compromise their debts under agreement with their creditors, and maximise their chances of trading profitably in the future. The SBR also allows business owners to remain in control of their business during the restructuring period, thus maintaining relationships with customers.

A restructuring practitioner (RP) assists business directors through the restructuring process. To act as an RP for your company, an RP must be a registered liquidator or Restructuring Practitioner.

Here are some of the key benefits of the SBR for small businesses:

  • Business Owners Remain in Control: Unlike other insolvency procedures, such as Voluntary Administration, the SBR scheme allows business owners to retain control of their business during the restructuring process. This allows the business owners and directors the chance to make changes to how they operate, in order to remain stable and viable.
  • Debt Repayment Plans: The SBR involves small businesses working with registered restructuring practitioners (RPs) to develop and propose manageable repayment plans to creditors. These realistic plans help to ensure that the business can remain viable.
  • Protection from Legal Action: During an SBR, the small business involved is protected from creditor enforcement actions. This means that rather than dealing with legal issues, they instead have the opportunity to focus on the recovery of their business.
  • SBR is Cost-Effective: Traditional insolvency proceedings can take longer than initially expected, and work conducted by an administrator or liquidator can mount up to a large number of hours, which a business needs to pay for. This can be challenging for small businesses already struggling with debt. The good thing about an SBR is that the cost is known upfront. In fact, an SBR cannot progress unless the RP’s fee is outlined and agreed to by the business. This way, businesses know up front what the damage will be, and this clarity can relieve anxiety about costs a great deal.
  • Job Preservation: During an SBR, the business is stabilised, and this can help to safeguard jobs as well as maintain operations. This is good news for employees and local communities who may rely on the services provided by the business.

 

Gaining Hope Through Small Business Restructuring

Acknowledging that your small business is in financial trouble is obviously the first step when it comes to saving your business. The next steps involve finding out if you are eligible for a small business restructure, and seeking support from a small business restructuring practitioner, who can help you to develop a payment proposal to present to your creditors.
If you progress with a small business restructure, your business can continue to operate, and you can experience a little bit of breathing space as the SBR is being handled.
In addition to an SBR, you may take other measures to change how your business is structured, how it operates, what products and services you offer, and how you might improve compliance, however these changes fall outside of the scope of an SBR.

Is Your Business Eligible For A Small Business Restructure?

Check your eligibility for Small Business Restructuring today. Take our short eligibility test or contact us to find out more.