Small Business Restructuring

There are many reasons why a business may need to consider restructuring. These reasons include difficulty in repaying or overcoming high start-up costs, the costs associated with over-expansion, expansion into unprofitable areas, the loss of a major customer, unexpected costs, an unanticipated slump in sales, and various other issues.

Even businesses that were profitable in the past can suffer setbacks or missteps that result in financial trouble. This is obviously a very stressful and often confusing situation for a small business owner to be in. If your small business is going through financial difficulties, you may be looking at your options and thinking about what your next steps should be. Some business owners assume that, when a small business has financial difficulties, the only option is to file for bankruptcy. This is not always the case. A small business that is having financial difficulty does not necessarily need to file for bankruptcy. Whether or not this is the case for your business will depend on your unique situation. Small business restructuring is often possible and this process can be a way to turn your business toward profitability.

What is Small Business Restructuring?

Small business restructuring is reorganizing certain aspects of a company in order to adapt to changes or to achieve profitability or greater efficiency. In the case of a business that is having financial difficulties, restructuring would likely involve closing unprofitable locations and/or selling excess assets or returning them to secured creditors.

How is Small Business Restructuring Possible?

One way that small business restructuring is possible is through a Proposal to Creditors. The costs of restructuring are included in the proposal payments.

What is a Proposal to Creditors?

A Proposal to Creditors is a legal process that allows a business to submit an offer to creditors to repay debt over a longer period of time and/or to reduce the overall amount that is owed. Proposal payments, if accepted, can be structured many different ways. Most proposal payments are made monthly until the amount that has been agreed upon in the proposal is repaid. As mentioned, the professional fees associated with this restructuring are included in these monthly payments. . Effectively the creditors are paying for the cost of restructuring your small business. A proposal makes it possible for a small business to remain in operation under the control of the current management while also ensuring that creditors receive at least some of what is owed to them. It also lets the business retain assets, which can be crucial to the operation of the business going forward. Assets may also be sold or returned to secured creditors as part of the proposal. This will depend on the terms of the proposal and the state of the business. A Proposal to Creditors can only be filed with a Licensed Insolvency Trustee. This is an individual who has received specific training and who is licensed by the federal government. A small business also receives legal protection from creditors once a proposal has been filed. Creditors are not able to start new legal action to collect debts and any existing legal action by creditors by law must be stopped when the proposal is submitted.

Is a Proposal to Creditors Right for your Small Business?

Every business is different and each business has its own financial situation. Therefore, it isn’t possible to state whether or a not a Proposal to Creditors is right for you without knowing the particulars of your business. Small business restructuring in conjunction with a proposal is often helpful, but it will depend on the status of the business. Speaking with a Licensed Insolvency Trustee can help you determine if this option is right for you. When you meet with a Trustee, he or she will review the financial situation of your small business and provide you with information on the options that are available to you. A Trustee will not try to pressure you into choosing one option over another. The final decision is always yours to make. What a Trustee will do is outline all available options (including those that the Trustee cannot assist you with) so that you have all of the details that you need to make an informed decision for your small business. If a Proposal to Creditors is an option for you, you can discuss how small business restructuring might be possible under the terms of the proposal. Most Trustees offer the initial consultation at no charge.