To SBR or not to SBR? Is it the Best or Right Option?

It might come as a surprise that restructuring a trading business requires changes, sometimes uncomfortable changes. We all know that if you continue to do the same thing, you can expect the same result; but sometimes in practice we forget this principle.

Whilst you can utilise a Small Business Restructure (SBR) to compromise debts owed by a company, if the intention is to continue trading the business, the primary concern should be to determine whether the business is viable and can make money, not the percentage of legacy debts that can be reduced through undertaking an SBR (although this is a potential benefit).

So, what are some of the key business factors you should be reviewing to ensure your business is viable?

  1. Profitability – assessing profitability goes right to the heart of why you should be in business. Whilst we might love what we do, if we don’t make money, it isn’t viable and cannot continue (unless you fund it personally – and that usually only goes so far!). This should involve reviewing revenue streams and opportunities (including potentially increasing pricing) and expenses (including a hard look at any expenses that can be cut or reduced).
  2. Cashflow – an accurate cashflow is vital to ensuring you have sufficient funds available to pay debts when they need to be paid.
  3. Capital Expenditure – do you have ageing assets that need to be replaced? Are any assets inefficient, costly to maintain or no longer safe for use? Have you planned for future capital expenditure and the replacement of assets when they are likely to be needed?
  4. Staffing – Do you have too many employees? Do you need more staff? Have you thought about contingency plans if a key employee decides to leave? Retaining staff (including appropriately qualified employees) is integral to having a viable business.
  5. External factors – have you thought about other business factors that are outside of your control and what impact these might have on your business? What are you doing to minimise these risks where possible?

Your accountant or business advisor will be able to guide you to look under the hood of your business and assess what opportunities might exist to improve its viability.

Since their introduction, SBRs have been well received by stakeholders (including the ATO) to restructure businesses in a cost-effective manner and reduce unmanageable legacy debts of companies. In the latest available statistics, 92% of SBRs that were put forward to affected creditors were accepted and the ATO was a major creditor in the vast majority of these matters.

If you or your client are considering whether to undertake an SBR, we encourage you to reach out to your local SV Partners’ office to see whether a restructure is the right option for you.

Article written by Daniel Luckman (Associate Director) – Sunshine Coast

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