What is SBR?
Small Business Restructuring (SBR) is a process designed to help financially distressed small businesses manage their debts and improve their financial viability. It typically involves creating a formal plan to reorganise the business’s affairs, debts, and operations with the aim of enabling the business to continue operating and avoid insolvency.
Recent updates on SBR
The economic landscape in Australia has tightened, with tax-related debts to ATO now a major factor in insolvencies. On 25 June 2024, ATO Commissioner Rob Heferen reported that collectable debt now exceeds $50 billion, with small businesses accounting for $34.1 billion. This has led to an aggressive ATO crackdown to recover tax debt including a spike in court wind-up applications.
The ATO has been receptive to SBR proposals, offering businesses a way to regain financial stability.
Case studies
Levi Consulting assists small businesses across various industries through the SBR process. The following case studies highlight how businesses in different industries have successfully navigated the SBR process to recover from financial distress and continue operating.
Case Study 1: Project Book Haven
Company Background
Book Haven is a small, independent bookshop located in a bustling urban area, known for its curated selection of novels and community events. With the rise of online shopping and e-books, the store experienced a sharp decline in revenue, leading to liquidity issues and an accumulation of debts, primarily owed to the Australian Taxation Office (ATO).
Steps Taken to Ensure Eligibility for SBR
To ensure eligibility for SBR, the following steps were taken:
- All outstanding employee entitlements, including superannuation arrears, were paid.
- An external accountant was engaged to bring management accounts up to date.
- All outstanding returns, including Activity Statements, were lodged with the ATO.
Business Continuity Assessment
To improve operational efficiency, the bookshop:
- Introduced an e-commerce platform to supplement in-store sales.
- Reduced operating hours to cut costs without severely impacting sales.
- Partnered with local schools and authors for events to drive community engagement.
The SBR Plan
The restructuring plan proposed a total repayment of $20,000. This included an initial lump sum payment followed by monthly instalments over 12 months, funded by the bookshop’s online sales and increased community event revenue.
Outcome
Creditors received 18 cents per dollar, compared to a nil return in liquidation. The bookshop was able to maintain operations, keep its staff employed, and adapt to changing market trends, including a growing online presence.
Case Study 2: Project Diner Delight
Company Background
Diner Delight is a family-owned diner located in a regional town, popular with locals and tourists. The business faced declining foot traffic due to roadworks and the downturn in tourism resulting from Covid, resulting in liquidity issues and significant tax debt.
Steps Taken to Ensure Eligibility for SBR
To qualify for SBR, the diner undertook the following steps:
- Paid all outstanding employee entitlements, including superannuation arrears.
- Engaged an accountant to bring financial accounts up to date.
- Lodged all overdue tax returns and activity statements with the ATO.
Business Continuity Assessment
The diner implemented several key measures to ensure business continuity and financial improvement:
- Launched a delivery service and partnered with local food delivery apps.
- Introduced limited-time promotional discounts to attract new customers.
- Renegotiated supply contracts to reduce food costs.
The SBR Plan
The proposed restructuring plan involved a total repayment of $35,000. This included a combination of an upfront payment from the owner’s personal savings and monthly instalments over 10 months.
Outcome
Creditors received 16 cents per dollar, compared to a zero return in liquidation. The diner successfully implemented the restructuring plan, retained all staff, and stabilised its revenue by introducing new sales channels.
Case Study 3: Project Explore Travel
Company Background
Explore Travel is a boutique travel agency advising customers on travel experiences. Due to the global downturn in travel during the pandemic, the business suffered from a drastic decline in revenue, accumulating significant debts, primarily owed to the ATO.
Steps Taken to Ensure Eligibility for SBR
To qualify for SBR, Explore Travel took the following steps:
- Settled all outstanding employee entitlements and superannuation arrears.
- Engaged an external accountant to update financial records.
- Lodged all outstanding returns with the ATO.
Business Continuity Assessment
To ensure operational sustainability and improve financial health, the travel agency:
- Pivoted its business model by offering domestic travel packages and virtual travel planning consultations.
- Launched a subscription service for exclusive travel deals and itineraries.
- Engaged in targeted online marketing to reach new customer demographics.
The SBR Plan
The restructuring plan involved a total repayment of $50,000, with the first payment made from the director’s savings and the remaining amount paid over 12 months from operational revenue.
Outcome
Creditors received 14 cents per dollar, compared to a nil return in liquidation. Explore Travel was able to shift its focus to domestic travel, retain key employees, and diversify its revenue streams, positioning the business for recovery as international travel resumed.
How can we help?
Levi Consulting is dedicated to supporting small businesses through the SBR process. If your business is facing financial distress, we can assist you in navigating the complexities of restructuring, ensuring compliance, and developing a plan tailored to your unique needs.
Click here to download our fact sheet for businesses and their advisors
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