Too Much Debt & Not Enough Profit? A Restructure May Be Your Answer

Would it help your business get back on its feet if debts could be paused, or reduced, until the business can afford to pay them? Or, do you need to exit from some loss-making location leases?

If your business had to pay all of its debts when the payment schedules or invoices say they should be paid, would that be stressful?

If you answered “Yes” to any of the above questions, read on because a Restructure may be your answer.

What is a Restructure?

A ‘Restructure’ is a set of actions taken by a company (or group of companies) to significantly change its debt, operations and/or structure, usually when there is financial pressure, with the aim of limiting financial harm and improving the business.

What can Restructuring involve?

There are two main types of Restructuring – Informal Restructuring and Formal Restructuring. Businesses can do one or the other, or a combination of both.

Different types of restructuring are used to address different issues in a business.

Informal Restructures

In summary, an Informal Restructure usually involves talking with the business’s key creditors, financiers, management and investors and cutting deals, renegotiating agreements, and making improvements to make the business profitable again, or more profitable into the future. These discussions usually start with the frank admission that things cannot remain as they are, and change is needed in order for the business to survive and grow.

This can include:

• Landlord and lease negotiations
• ATO and supplier negotiations
• Seeking further bank or finance funding (or refinancing)
• Seeking new investors
• Market repositioning – product range, customer experience, refreshing locations etc.
• Operational improvements and cost reductions
• New management and key personnel changes
• New marketing strategies

However, sometimes it isn’t possible to get all of the key parties, especially all of the key creditors, including landlords and the ATO, on the same page by negotiation alone.

So, what do you do now if there’s still a good core business there that would be profitable, or more profitable, if it wasn’t so burdened by debt and maybe some loss-making locations?

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