Restructuring saves SMEs from spiralling into insolvency – ScotPac

by Micah Guiao19 Oct 2021

Four in 10 small and medium enterprises (SMEs) claimed to have restructured in the past year, while a quarter of them said this move saved their business from spiralling into insolvency, ScotPac found in its latest SME Growth Index.

“The smaller the business the stronger the impact of restructuring on survival, as one in three smaller SMEs in the $1-5m revenue bracket said restructuring saved their business,” ScotPac said.

Jon Sutton, chief executive officer of ScotPac, said that restructuring – in funding, operations, ownership or otherwise – was a beneficial response to the current economic situation.

“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.”

This is precisely what SMEs are doing. Earlier this month, the SME Growth Index recorded that two in three SMEs sought out for new funding methods to cope with the pandemic.

Another common strategy SMEs are looking into is tightening cash flow.

Around eight in 10 SMEs had cash flow issues in the past 12 months. A similar Apricity research warned that thriving SMEs are also at risk of a cash flow crisis, stating that 77% of cash flows have significantly deteriorated over the first half of 2021.

The usual response to improve cash flow is introducing new finance and negotiating better payment terms. However, nearly half of the ScotPac respondents did something surprising: business owners either closed shopfronts, moved premises or haggled on rent.

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

On the other hand, one in five SMEs reported having no cash flow issues. ScotPac attributed this higher-than-usual figure to the pandemic support provided by the state and federal governments.

“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 cash flow,” Sutton said.