If your business has recently come under a financial strain, don't worry.

Following the economic turmoil and financial challenges of the last three years, many small businesses have faced financial difficulties outside their control.

The small business restructuring (SBR) framework allows businesses to alleviate financial pressure, change direction, and set their business up for a sustainable long-term future. Let's explore the SBR model, its functions, and why it can promote exciting new growth within your company.

What is Small Business Restructuring?

The Australian government introduced the small business restructuring framework on 1 January 2021 to help businesses struggling financially. Following the SBR process, an insolvent company or soon-to-be insolvent can restructure its debts by creating and proposing a plan of action to its creditors.

The proposed plan, supported by an external restructuring practitioner, details how the business intends to restructure for future success and sets out how it plans to repay its creditors.

Unlike other insolvency procedures such as liquidation and voluntary administration, small business restructuring adheres to a 'debtor-in-possession' framework. This means that the company directors always maintain complete control of their business, allowing them to operate as usual throughout the SBR process.

In the past, insolvency procedures were too complex, time-consuming, and costly. If a business owner has less than $1 million of liabilities, they can apply for restructuring at the first sign of danger and get the help they need to get their business back on track.

Once the external practitioner and the business directors complete their plan, they send it to the business's creditors for approval. If the proposal is accepted, the restructuring goes ahead. If not, companies must choose another insolvency procedure, like simplified liquidation, to repay their debts.

The framework has been hugely successful. As of September 2022, ASIC reports that creditors approved 92% of all plans; of those accepted plans, 65% came into effect.

How Can Small Business Restructuring Lead to Growth?

The SBR process gives business owners several unique opportunities to take charge of their future and rebuild their company for success. Let's look at some of the ways the framework allows for this.

1. An Opportunity to Rebuild

Consumer trends are evolving all the time. Many small businesses struggle to keep up with rapid social and technological changes without adequate cash flow. This puts them at an enormous disadvantage compared to large corporations that can afford to adapt as the world evolves.

SBR provides a valuable opportunity for businesses to adapt. The scheme allows business owners to reshape and reorganize their companies to align with customers, close technological gaps, and sustain long-term growth in a new era. The SBRP is about helping a business to thrive, not just survive.

2. Taking Back Control

In the past, those following an insolvency scheme needed to hand over company control to an independent liquidator. With SBR, business directors maintain complete control of their company throughout. With professional help from a restructuring practitioner, business directors can continue operating normally and make critical decisions that help decide the company's future. 

If you're going through insolvency, it's easy to feel like you are losing control of the business. That's why SBR puts the power back into your hands.

3. Lower Costs

On average, SBR is significantly more affordable than insolvency procedures like voluntary agreement or liquidation. This gives a business more finance to invest in the restructuring process itself.

The SBR process also allows your business to reduce costs by identifying operational inefficiencies. Reducing unnecessary expenditures, acquiring coverage for commercial assets, and streamlining operations make preparing your business for future resilience easier.

4. Reallocate Your Finance

The SBR process is the ideal opportunity for a business to assess the effectiveness of its capital allocations. 

Companies with a low cash flow spreading their finances too thin may need help to make an impact. Allocating more resources to fewer areas lets a business aggressively carve out a new competitive position to build market authority and increase chances of long-term success.

5. Knowledgeable Assistance

When businesses opt for SBR, they are assigned a knowledgeable specialist practitioner who helps oversee the process. All practitioners are uniquely qualified to help get the business back on track. The quality practitioner does more than ensure compliance; they offer advice, help guide the process, and protect the director's interests.

Having a professional practitioner with your business's best interests at heart gives you the support you need to rebuild for success.

Summing up

The small business restructuring provides a framework for businesses struggling financially to alleviate pressure, change direction, and set themselves up for long-term sustainability. The SBR process allows businesses to rebuild, regain control, reduce costs, reallocate finance, and benefit from knowledgeable assistance. 

The debtor-in-possession framework ensures that company directors maintain complete control of their business throughout the process, allowing them to operate as usual while making critical decisions about the company's future. 

With a knowledgeable specialist practitioner overseeing the process, businesses can receive professional guidance and support to rebuild for success. SBR has proven a successful and cost-effective alternative to traditional insolvency procedures. It allows small businesses to turn crisis into opportunity and promote exciting new growth within their company.