For small firms a little debt need not be such a big deal

Sometimes “it’s the little things that trip you up”. The words of former taoiseach Albert Reynolds could easily be applied to SMEs, which can find themselves in danger of going to the wall due to relatively minor debts.

It’s a situation that Small Firms Association (SFA) director David Broderick encounters frequently. Broderick describes himself as “passionate about small businesses” and is very aware of the precarious position some can find themselves in following Covid and the debt warehousing tax payment deferral scheme introduced to help relieve pressure during the pandemic.

“I understand that the majority of debt owed by small businesses is in the region of €1,000 or perhaps less,” says Broderick. “However, some companies have in the region of €5,000 owing and this can be problematic. If you are a small business dealing with issues such as statutory sick pay, the increased minimum wage, rising energy costs etc, then €5,000 can be a very difficult sum to find.”

To that end, the SFA works closely with Revenue, creating a safe space for members, particularly those reluctant to engage with Revenue. The association recently arranged a Revenue presentation, to explain what options were open to SFA members, after which questions were taken from the 300-strong audience.

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“There were a lot of questions,” says Broderick. “Our focus is to encourage members to engage with Revenue. Through the presentation we were able to show that Revenue is very open, has flexible timescales for repayment and the recent news that there was zero interest applied to the debt was very welcome.

“Sometimes a business may need to hold up its hand and admit it’s not working but two processes – examinership and the Small Company Administrative Rescue Process (Scarp) – can give a viable business a chance to get back on their feet.”

Broderick does not claim to be an expert in this area but stresses that one of the benefits of SFA membership is that whenever a small-business owner needs to speak to someone with expertise, they can simply contact him.

“If we don’t know how to help, we’ll know somebody who will. That’s our mantra: if we don’t have the answer then we will certainly find someone who will,” he says.

One such specialist is Paul Ryan, CEO at business management consultancy AuxiliaGroup, which works with firms to solve problems and meet challenges.

“We see ourselves as a people solutions business, where we can provide experience and expertise into organisations directly, through consultancy or as an adviser,” says Ryan. This can involve deploying staff directly on a project-by-project basis, he adds.

AuxiliaGroup works with multinationals, corporates and small businesses. Its client base is broad, taking in everything from construction to financial services, as well as insurance, warehousing, health, utilities, and the food and beverage sector. Its six partners come from different backgrounds but are sector agnostic, with skills that are transferable across the company, says Ryan.

He identifies sustainability as the primary challenge for many businesses at present and says AuxiliaGroup tries “to help people navigate that path”.

Covid-era debt warehousing made sense for business large and small, as parking the debt was cheaper than seeking finance from the banks; nonetheless, some companies have been slow to address their debt, says Ryan. But business owners in such a position should remember that the debt is interest free or low interest; Revenue offers flexibility on repayment schedules and repayment options including paying an upfront amount and spreading the rest over an agreed period.

With regard to examinership and Scarp as ways to support businesses, Ryan emphasises that a business must be viable for these options to be considered.

Many owners are great at their business but maybe not the peripheral functions, which can be critical

—  Paul Ryan, AuxiliaGroup

“Basically, it’s the role of all businesses not to become insolvent,” he says. “We work with clients across a range of areas to keep them afloat and viable. A key aspect is having really tight credit terms – a sale is not a sale until it’s in the bank. Businesses need to ensure they get paid on time – that they have good credit terms with their suppliers.”

AuxiliaGroup also assists clients in reviewing service and product offerings; it is vital, Ryan emphasises, to identify which ones are profitable and which are not.

“Above all, do bring in expertise to help you navigate out of your operational or financial issues,” he says. “Many owners are great at their business but maybe not the peripheral functions, which can be critical. At the end of the day, you really want to try and avoid going down the examinership or Scarp route.”

Examinership is a process where a company obtains the protection of the court to reach a binding settlement of debts owing to creditors. It is expensive – the process can cost at least €100,000 – and can entail lots of board involvement and trips to the court. The starting point is to get an independent accountant’s report indicating that the company has a reasonable prospect of survival.

Scarp is a quicker, more affordable restructuring option, which does not involve court oversight and which is available to small and micro businesses facing financial distress.

A relatively new process, introduced in 2021, it involves an adviser working to secure good terms within a time frame of 42 days. While better for small companies, it does not automatically give court protection, which has to be applied for separately if necessary.

Declan de Lacy, partner in Azets’ advisory and restructuring team, often finds himself dealing with clients who are unsure of how to tackle their liabilities.

“Sometimes they are unsure if they can discharge their debts and are looking for a restructuring of payments over a long period,” he says. “But sometimes the solution might be to recognise the insolvency in the case of an irretrievable difficulty; otherwise the directors might be exposed to the risk of being sanctioned for reckless trading.”

De Lacy divides his time between restructuring companies and acting as a liquidator of businesses that cannot survive.

“Sometimes the directors can go and do something else in the future – but liquidation is part of the suite of tools for companies that are unable to pay their debts,” he says.

He urges companies in difficulty to seek professional help in navigating the best way forward.

“Engaging is the first step to recovery,” he adds.