“Using Small Business Restructuring (SBR) we help business owners implement a structured repayment plan, addressing the key issues, including ATO tax debt, head-on.
“This case highlights the importance of sound financial management and professional advice in times of uncertainty. This bread & pastry business is now well on its way to recovery and future success.”
John Morgan, Director
Client Overview
The client, a family-owned bakery and café located in Varsity Lakes, Queensland was established in January 2021. The business quickly gained a reputation for its high-quality, freshly baked goods.
Operating as both a café and a wholesale supplier, the company serves a growing local customer base, providing delicious pastries, bread, and other baked goods.
Additionally, the client supplements its café revenue by offering wholesale orders to local cafes and restaurants, ensuring a steady demand for its products across the region.
Despite their community involvement and a solid presence in the hospitality industry, the company faced several significant challenges, culminating in an ATO tax debt, hindering its financial stability.
The Challenges
COVID-19 and Economic Impact
The hospitality industry, like many others, was severely affected by the COVID-19 pandemic. Lockdowns and social distancing restrictions resulted in reduced customer footfall, compounded by a broader economic downturn. The downturn hit small businesses particularly hard.
Cost Pressures
Increased costs of goods sold (COGS) and operating expenses presented a major challenge. Despite these rising costs, the company struggled to raise prices, leading to pressure on profit margins.
Inability to Keep Up with Growth
Rapid growth, combined with a lack of sufficient business management experience, led to challenges in managing the company’s operations effectively. This included falling behind on tax payments, as staff wages, rent, and supplier obligations were prioritized.
Director’s Inexperience
The company’s director, though passionate about the business, lacked prior experience in running a business within the hospitality sector. This contributed to financial mismanagement and poor decision-making in key areas such as debt management and financial planning.
Inefficient Debtor Management
The company struggled to collect outstanding debts from its wholesale customers in a timely manner, leading to a cash flow crisis.
Weak Financial Controls
Poor financial controls, particularly in managing statutory obligations and tax payments, caused the company’s ATO (Australian Taxation Office) tax debt to increase significantly. Eventually, this left the business unable to make substantial reductions to its outstanding liabilities. A tax debt solution was needed along with strict debtor management.
Debt Profile
The bakery found itself facing significant debt due to these challenges. The total amount of debt included in their plan amounted to $382,469. Key creditors included the ATO and several other trade creditors.
Our Business Debt and ATO Tax Debt Rescue Plan
Communication with the Director
We engaged with the director to gain a clear understanding of the business’s difficulties and to identify potential solutions.
Creditor Engagement
We facilitated discussions with creditors, ensuring they were kept informed throughout the administration process.
Debt Reduction Strategy
We developed a reasonable and achievable payment plan for the company, aimed at providing a fair outcome for all involved parties.
Proposal Preparation
A carefully prepared proposal was submitted to creditors, highlighting how the Small Business Restructuring (SBR) plan would lead to the best outcome for the company’s future.
Debt Reduction
Through strategic negotiations and our tax and business debt solutions, we significantly reduced the company’s debts, giving it a chance for a fresh start.
An SBR Rescue Plan
After thorough discussions and careful planning, the client entered into an SBR Plan, with the director personally contributing $87,500 into the Restructuring Practitioner’s (RP) bank account within two months of the plan being accepted. This amount went towards the company’s debt repayment, which represents an approximately 77% reduction from the original debt.
This plan offers a more sustainable repayment option, reducing the company’s debt burden significantly.
The Outcome – a bakery equipped for growth
Despite facing a challenging set of circumstances, the client has successfully navigated their way through financial distress. By working with our experienced insolvency team at BCR Advisory, the company has reduced its debts, gained a clearer path forward, and is now better equipped to manage its growth and financial obligations.