Restructuring revealed to have saved many SMEs from insolvency

A new report indicates that restructuring efforts being made for small businesses have helped soften the economic hardships they experienced during the pandemic, helping them avoid shutdown in the process.

ScotPac’s latest SME Growth Index reveals that almost four in 10 SMEs that have undergone restructuring that has helped them avert insolvency or bankruptcy. In detail, 39.9 per cent of SMEs undertook a restructure of their business in the past 12 months, which also included funding, operational and ownership restructuring.

The report indicates that the smaller the business, the stronger the impact of restructuring on survival, as one in three smaller SMEs (in the $1 million to $5 million revenue bracket) said that restructuring has saved their business.

For SMEs, the main benefit of restructuring was keeping the business viable. Other key benefits include boosting cashflow (22.8 per cent), cutting costs and reducing overheads to boost the bottom line (15.8 per cent), retiring debt (12 per cent) and improving productivity (11.2 per cent).

ScotPac CEO Jon Sutton said the research shows clear benefits for SMEs who are willing to restructure.

“A key component of restructuring can be looking at how the business is funding. This may mean looking outside traditional bank sources for appropriate funding,” Sutton said.

“Trusted advisors such as accountants, brokers and bookkeepers should be talking to SME clients to see if potential positive impacts could come from restructuring,” Sutton added. “The current strong reliance on restructuring indicates business owners’ desire to adapt, at a macro level, to dynamic market conditions. At the micro-level, we also see SMEs making a push to control cashflow more tightly.”

The report also noted that 78.2 per cent of SMEs reported having cashflow issues in the past year and took on cashflow control strategies outside their norm to address the matter, with 42.8 per cent saying that they closed offices or shopfronts, moved premises or negotiated rent reductions.

“Since 2014 our research has tracked SME strategies for easing cashflow and this is the first time the top strategy has been closing, moving or seeking rent reductions,” Sutton said.

The next most popular response was introducing new finance to improve cashflow as stated by four in 10 SMEs. /third was to negotiate better payment terms, with three in 10 businesses reported trying this

One in five SMEs reported having no cashflow issues over the past 12 months. This proportion of SMEs with no cashflow concerns is higher than usual, which the report noted may be due to state and federal government pandemic support provided.

“It will be interesting to track the small business sector’s cashflow issues into 2022 to see if the end of government support packages and a potential return to ‘business as usual’ sees SMEs reverting to their usual higher level of concern about cashflow,” Sutton said.

The SME Growth Index survey was conducted independently by East & Partners and polled 1255 small businesses for the latest edition.