If your company is struggling with ATO debt, you're likely wondering how much you could reduce it through Small Business Restructuring (SBR).
While every situation is different, examining real examples of what Australian companies have achieved through this process can help you understand what might be possible for your business.
Typical debt reduction outcomes
The results from successfully completed SBRs across Australia show consistent patterns of significant debt reduction. Most companies achieve between 60-75% reduction in their ATO debts, with similar reductions for other unsecured creditors. These remaining debts are typically paid over 12-24 months, allowing businesses to continue trading while meeting their restructured obligations.
What makes these outcomes particularly powerful is that they're achieved while companies continue normal operations. This means maintaining relationships with customers, keeping staff employed, and preserving business value - all while significantly reducing debt burdens.
Real examples of SBR results
Case study 1: Hospitality business
Sarah's café, like many hospitality businesses, accumulated significant debt during COVID-19. With reduced capacity restrictions and changing consumer behaviours, the business fell behind on tax obligations despite having a fundamentally sound business model.
Through SBR, the café achieved remarkable results:
Starting debt: $400,000
Reduction achieved: 70%
Final amount: $120,000
Payment term: 12 months
Monthly payments: $10,000
Today, the business continues to trade successfully, with improved systems and stronger financial controls. Sarah reports that the restructure gave her business the breathing space it needed to adapt and thrive in the post-COVID environment.
Case study 2: Construction company
Tom's building contracting business faced challenges with legacy tax debt that accumulated during a period of rapid growth. Despite having a healthy order book, cash flow pressures from delayed payments and increasing material costs made it impossible to meet historical tax obligations.
The SBR process helped transform the company's position:
Starting debt: $850,000
Reduction achieved: 65%
Final amount: $297,500
Payment term: 18 months
Monthly payments: $16,530
The business has since completed its payment plan and continues to grow, now operating debt-free with strong financial management practices in place.
Factors affecting debt reduction levels
The level of debt reduction possible through SBR depends on several interconnected factors. Business viability stands as the cornerstone of any successful restructure. This isn't just about current profitability - practitioners and creditors look closely at future prospects, industry conditions, management capability, and historical performance to assess whether a business can sustainably meet its restructured obligations.
Your company's asset position plays a crucial role too. Available capital, equipment value, stock levels, and debtor quality all influence the negotiating position with creditors. Strong asset positions often support better restructuring outcomes, as they demonstrate the business's underlying value and potential.
The mix of creditors also significantly impacts potential outcomes. While the ATO often represents the largest creditor in many SBRs, the positions of secured creditors, trade relationships, and employee entitlements all need careful consideration. Related party claims require particular attention, as their treatment can affect the overall restructuring proposal.
Making the numbers work
Successfully reducing debt through SBR requires a deep understanding of your business's financial capacity. The starting point involves a comprehensive assessment of your current position, including total liabilities, secured debts, unsecured creditor positions, and available assets. This baseline then needs to be measured against projected future earnings to determine a sustainable debt level.
The key lies in proposing payments that your business can reliably maintain. This means carefully considering:
Monthly cash flow patterns
Seasonal trading fluctuations
Ongoing operating costs
Growth requirements
Working capital needs
Planning for success
Timing plays a crucial role in maximising debt reduction potential. Early action, before debts become unmanageable, often leads to better outcomes. Maintaining compliance with current obligations while addressing historical debts demonstrates good faith and strengthens your negotiating position.
Business improvements should run parallel to the restructuring process. This might involve reviewing pricing strategies, optimising operations, controlling costs, or strengthening systems. These improvements show creditors that underlying business issues are being addressed, not just the debt symptoms.
Long-term sustainability
Success in SBR extends well beyond the initial debt reduction. Implementing strong financial management practices ensures your business maintains its recovered position. This includes robust budgeting processes, regular monitoring of key metrics, and a strong focus on cash flow management.
Building business strength through excellent customer service, strong supplier relationships, and engaged employees creates a foundation for ongoing success. Combined with operational efficiency and a solid market position, these elements support long-term sustainability.
Next steps to explore your options
If you're considering exploring debt reduction through SBR, start by gathering key information about your company's position. Review your total debt levels, recent trading performance, and eligibility criteria. This preparation helps facilitate productive discussions about your options.
Contact our team for a confidential discussion about your situation. We'll help you understand whether SBR could work for your company and guide you through the next steps.
Remember: While every situation is unique, significant debt reduction is possible with the right approach and timing. The sooner you act, the more options you'll have for securing your business's future through SBR.
Read next: Understanding your SBR Practitioner's role: What to expect and how they help
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