Seven Benefits of Small Business Restructuring in Australia

It is estimated that over 97.5% of all businesses in Australia are small businesses, with a further 2.3% being medium businesses. With these statistics in mind, it would be fair to say that small and medium enterprises (SMEs) are the backbone of the Australian economy, contributing significantly to job creation and economic growth.

During the COVID-19 pandemic, it was these SMEs that were hit the hardest. With severe lockdowns in place and public mobility at a minimum, SMEs saw profits dwindle, stores closed, and debts rising. In the face of these hardships and the possibility of mass insolvency, the Australian government changed Australia’s insolvency framework to introduce a simplified debt restructuring process for eligible small businesses in 2021.

This Small Business Restructuring (SBR) process was designed to help struggling SMEs access a single, streamlined process to restructure their debts while preserving ownership of their companies.

If you’re an SME on the verge of insolvency due to the inability to pay debts and if you have total liabilities of less than 1 million, you may be eligible for the SBR process. If you’re unsure whether you are eligible, enlisting the help of small business restructuring services can help you find out.

Here are some key benefits of small business restructuring in Australia and how it has positively impacted the economic landscape.

1. Rescuing struggling businesses

The key benefit of SBR in Australia is its ability to rescue struggling businesses from the brink of insolvency. Small enterprises with financial troubles had few choices before the establishment of SBR. Often, liquidation was the only option, leading to the company's closure and the loss of jobs. Businesses can reorganise their operations and debts using SBR, allowing them to continue operations. Compared to liquidation, this keeps people employed and enables creditors to recover more of what is owed.

2. Cost-effective resolution

SBR offers a more affordable option than conventional insolvency procedures. Small enterprises frequently lack the financial means to participate in lengthy legal disputes and insolvency proceedings.

SBR is more affordable because it is streamlined, which lowers the associated costs for struggling businesses. Because of this accessibility, even the smallest of businesses can benefit from the process, fostering a fair and equal work environment.

3. Reduced stress and mental health benefits

Although running a small business is no easy task, it becomes even more mentally taxing if it faces financial difficulties. With the cost of living at an all-time high and Australia fresh off the heels of the pandemic, small businesses have undoubtedly felt the pinch, resulting in high levels of mental health issues in small business owners. Among these, small businesses in the established but stressed stage reported 32% of owners struggling with poor mental health.

This clearly shows that the looming threat of insolvency can take a toll on business owners and their families. SBR offers relief by showing owners a clear path to resolution, reducing stress levels and potentially improving the mental load of business owners.

4. Preservation of entrepreneurial spirit

Small businesses are often the hub of innovation and entrepreneurial spirit and are more likely to take risks when they know they have the option to restructure and recover from setbacks. SBR recognises the importance of preserving this spirit by giving struggling entrepreneurs a second chance, ultimately driving economic growth.

5. Job preservation and creation

With the vast number of businesses in Australia being SMEs, there is no denying that the small business industry is a massive contributor to employment. The small business sector in Australia generates over 8 million jobs, serving as a reminder of the incredible benefit of small businesses on the Australian economy.

6. Creditor recovery

Through the SBR process, creditors have a better chance of recovering their debts than liquidation, which benefits both the business and the creditors. This encourages a more favourable climate for creditors and may boost confidence in financing SMEs.

7. Encouraging responsible business practices

The SBR process mandates businesses to meet certain eligibility criteria. Businesses must prove that they are actually having financial problems and are unable to pay their debts. Their total debt must also be under $1 million to be eligible. This discourages reckless business behaviour and promotes financial restraint. Additionally, it guarantees that only deserving SMEs benefit from the provisions, upholding the framework's integrity.

The Small Business Restructuring (SBR) provisions are crucial in supporting the vibrant nature of the small business sector as Australia continues to navigate economic difficulties, cost-of-living crises and uncertainty. They exemplify the country's dedication to giving its entrepreneurs assistance and chances, ultimately resulting in a more promising economic future for all Australians.

To chat to a professional about the SBR process, contact a small business restructuring services for information and guidance.