Case Study: Successful Restructure of a Regional Hospitality Business

INDUSTRY:                                                        Hospitality – Hotel Leasehold

DEBT:                                                                  $440,469

PLAN OF ACTION:                                            Small Business Restructure

Background

This regional pub offers food, beverages, and accommodation services. Like many in the hospitality sector, it was severely impacted by COVID-19, which led to accumulating debt and increased operational costs that strained profit margins.

The business was struggling financially and needed immediate restructuring to stabilise operations and regain profitability. Rapsey Griffiths collaborated closely with the director to identify challenges and craft a targeted turnaround strategy.

Core problem

The pub was losing money, and a rapid restructuring approach was essential. Rapsey Griffiths worked with the director to address key areas of improvement:

• Renovations and Expansion: A revamped gambling room and a new bottle-shop were introduced to drive increased income.
• Pricing Adjustments: Prices on goods and services were raised to align with rising costs.
• Cost Controls: Operational costs were reviewed and adjusted for better control.
• Wage Reduction: Wages for related parties were lowered to reduce financial strain.
• Financial Forecasting: A profit and loss forecast and cash flow model were developed, allowing for continuous monitoring and testing of the business’s financial viability.

The solution

A Small Business Restructuring (SBR) plan was identified as the most effective solution. This strategy empowered the directors to retain control of the business while benefiting from support by Rapsey Griffiths as the SBR Practitioner.

Major benefits of this approach included:

• Director Control: Directors retained decision-making authority throughout the process.
• Ongoing Trade: The company continued trading during restructuring.
• Fixed Fee Structure: The restructuring fee was fixed, ensuring predictable costs.
• Liability Mitigation: The SBR plan helped directors avoid personal liability under non-lockdown Director Penalty Notices.

Rapsey Griffiths worked alongside management, staff, secured creditors, and other stakeholders to ensure everyone was aligned with the restructuring plan.

The Restructuring Plan and Financial Contributions

Under the restructuring plan, the director’s family provided a lump-sum contribution to assist with debt repayment:

The outcome – a positive turnaround

The restructuring proposal was accepted, leading to substantial improvement in the company’s financial health:

• Balance Sheet Improvement: Immediate balance sheet enhancement of $182,647.
• Job Security for Employees: Employees retained their roles, promoting team stability.
• Stakeholder Satisfaction: Directors and shareholders were relieved by the outcome, and both customers and creditors supported the turnaround.
• Ongoing Compliance: With the assistance of Rapsey Griffiths, the business gained stability and is now positioned for long-term viability.

The successful restructure of this regional pub underscores the power of a targeted Small Business Restructuring strategy for overcoming financial difficulties. For other accountants and advisors, this case shows how SBR can be a powerful solution for clients, safeguarding jobs, and revitalising community businesses.

For more information on the SBR process and a complimentary guide to small business restructuring, visit Rapsey Griffiths https://rapseygriffiths.com.au/.