Why Restructuring Isn’t Always the Right Answer - O'Brien Palmer #insolvency #businessgrowth

One of the biggest misconceptions about insolvency and restructuring is that every business owner who seeks advice will end up in a formal appointment. That is simply not true. As Nathan Jammal, Director at O’Brien Palmer, explains: “There are plenty of meetings where I spend an hour or two with a business owner and at the end of it, I tell them, ‘I don’t think you need me.’” That may sound surprising coming from someone who works in restructuring and insolvency. But it is exactly how the process should work. The role of an insolvency and restructuring advisor is not to sell liquidations, Small Business Restructures or formal appointments. It is to understand what is really happening in the business and recommend the option that best fits the situation. Maybe it’s a cashflow problem Not every business with debt is insolvent. Nathan gives the example of a plumber with a $70,000 ATO debt and a lockdown Director Penalty Notice for around half that amount. The director was panicking, believing he was about to lose everything. But after Nathan reviewed the business, the position was different. The business was profitable. Customers were still paying and the work was there. “He didn’t need an insolvency appointment. He needed better cashflow management and a sensible payment arrangement with the ATO. That’s not an insolvency problem, that’s a cashflow problem.” Getting the right advice early can help a director understand whether the business needs a formal restructure, or whether the problem can be addressed through better management, advice and negotiation. Sometimes the business processes needs to change, not the company In other cases, the company may not need to be restructured at all. The business may simply need to operate differently. Financial distress does not always mean the whole business is broken. Sometimes specific parts of the business are no longer working, and those parts need to be addressed quickly. When a formal restructure is the right solution There are also situations where a business is fundamentally good, but has been hit by circumstances outside its control. Nathan gives the example of a labour hire company that worked almost exclusively for one client. When that client was sold to another company, the new owners no longer required the labour hire arrangement. Almost overnight, a successful business lost most of its income. However that did not mean the business was bad. The staff were still there. The systems were in place, and the customer experience was still there. And the directors were actively approaching new clients and rebuilding the customer base. “The business did not suddenly become a bad business. It simply lost its biggest customer. There’s a big difference.” This type of business may be suitable for a Small Business Restructure. A restructure can give an otherwise viable business room to compromise debt, preserve value and keep trading. When the kindest advice is to stop There are difficult cases where the most honest advice is that the business should close. Not because anybody has done anything wrong, it just sometimes makes better commercial sense to stop trading as it is only creating more debt, more stress and more risk. Nathan gives the real example of a business where revenue has been declining for years, the business loses money every month and the director is using personal credit cards to pay wages. In that situation, there usually is no realistic pathway back to profitability. “Sometimes closing the business is the bravest and smartest decision a director can make… The hardest conversations I ever have aren’t recommending a small business restructure. They’re the conversations where I sit across from someone who spent 20 years building a business and I tell them it’s time to let it go.” That advice can be difficult to hear. But it may prevent further debt, stress and personal exposure. Honest advice means knowing the difference People often think an insolvency practitioner’s job is to save every company. But that’s not the case. The key is getting advice early enough to understand the options properly. Because not every business needs an insolvency practitioner. Some just need good advice in a timely fashion, and at O’Brien Palmer, we are expert at giving that initial valuable advice that can make a real difference to how you choose to move forward. If you want more information for your business, please reach out and speak to either myself, Nathan, or one of our expert team. LIAM BAILEY, MANAGING PARTNER O’BRIEN PALMER 📞 (61) 2 9232 3322 📧 obp1@obp.com.au 🌐 obp.com.au #BusinessRestructuring #Insolvency #SmallBusinessAustralia #BusinessTurnaround #CashflowManagement #DirectorDuties #SmallBusinessRestructure