Restructuring saved many small and medium businesses from insolvency

Jon Sutton, Chief Executive Officer, ScotPac

National research by ScotPac found that the pandemic’s impact on the small business sector was significantly softened by SMEs taking action to restructure in the past year. 

ScotPac’s SME Growth Index polled 1255 small businesses and found 4 in 10 had restructured while more than 1 of 4 of these SMEs that restructured averted insolvency. 

ScotPac’s SME Growth Index findings

The smaller the business, the more influential the impact of restructuring on survival, as 1 in 3 smaller SMEs in the $1-5m revenue bracket said restructuring saved their business.

The SME Growth Index is Australia’s longest-running in-depth research on SME growth prospects, conducted by East & Partners on leading small business lender ScotPac.

The survey found that 4 in 10 (39.9%) SMEs restructured their business in the past 12 months and this included aspects like funding, operational and ownership restructuring.

For SMEs, the main benefit of restructuring was keeping the business viable.

Benefits include boosting cash flow (22.8%), cutting costs and reducing overheads to increase the bottom line (15.8%), retiring debt (12%) and improving productivity (11.2%).

Comments on ScotPac’s SME Growth Index

Jon Sutton, the Chief Executive Officer at ScotPac is optimistic with the survey findings.

“The research has shown that benefits are available for SMEs which restructure in order to adapt to the current business environment in the wake of the global pandemic.”

“A key restructuring component can be looking at how the business is funding and this aspect may mean looking outside traditional bank sources for appropriate funding.”

“Trusted advisors, for example accountants, brokers and bookkeepers should be talking to SME clients to see if potential positive impacts could be accrued from restructuring.”

“The current strong reliance that is resultant from restructuring indicates that business owners desire to transform at a macro level to meet dynamic market conditions.”

“Further still, while considering the micro-level, we have also seen SMEs making a push towards controlling cash flow more tightly in these adverse pandemic conditions.”

New strategies for cash flow control

Around 8 in 10 SMEs (78.2%) reported having cash flow issues in the past year and many took on cash flow control strategies outside their norm to survive the harsh conditions.

Almost half of the respondents (42.8%) said that they closed offices or shopfronts and moved premises or negotiated rent reductions in an attempt to cut operational costs.

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

“The following most popular response experienced from the research was that more than four in ten SMEs have introduced new finance in order to improve their cash flow.”

“Flowing from this, we have continuously seen the number of businesses that are using invoice finance to smooth out peaks and troughs doubling in the past three years.”

“The third most common cash flow strategy was to negotiate better payment terms 3 in 10 businesses reported trying this in attempts to keep a balance between costs and efficiency.” 

Almost one in five business owners said that their cash flow strategy had been conceptualized to put into practice pandemic recovery advice offered by their accountant.

A similar proportion of respondents said that they had indulged in reducing employee numbers or restricted their hours while some re-negotiated salary contracts.

Only one in five SMEs reported having no cash flow issues over the past 12 months.

A proportion of small and medium enterprises with no cash flow concerns is higher than usual, perhaps 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 normalcy sees SMEs reverting to their usual higher level of concern about cash flow,” Jon Sutton concluded.