Recognizing that you need help with business debts is the first step in ensuring that the business can survive. So often company directors believe that the problem will go away or is not really there. For instance they think the creditors will just not pursue the debt as they rely on our business, alternatively they notice sales are picking up and that the debt will go away. Directors can even be hopeful that a new project will take off.
Business people and entrepreneurs are often optimistic people and this is great to get businesses off the ground and convince people to invest in your product or service. However over optimism can get people into sticky situations. Most particularly debt can increase as sales increase. If the business is taking orders then it may have to increase costs before it gets money in from the customer. This can be in the form of increased PAYE liabilities or the cost of materials etc. When a business gets too far into debt when the sales pick up this is termed as "overtrading" and a cashflow crunch can derail the business.
In essence you can have business debts but not be insolvent. So it is a good idea to take our insolvency test and decide for yourself. Remember though that if you are owed money by debtors but you do not have the cash now to pay creditors then you are effectively insolvent and you need to take action.
So what action can you take to tackle the debt.
It may be that you are owed money but can't collect it in quick enough. Factoring can sometimes help with this.
You can agree with a creditor to pay off the debt over an extended time period.
You can take action to have the debts written off in full or in part.
Once the business is insolvent it is a good idea to talk to a licensed insolvency practitioner who can advise you one what action to take. We are happy to talk through the options with company directors and can issue a 30 page solutions report.
We can look at the various options
- Company Voluntary Arrangement CVA
- Pre Pack Administration
- Administration or trade sale
- Liquidation or Phoenix
- Informal Time to Pay creditors in full or in part.
- Business Asset Sales
You will need to be mindful of any offers to lend the business more money as this might just add to the debt of the business without addressing the underlying problems.
If the company is viable going forwards at a reduced level of debt then in order to have any of the debts written off the company is likely to have to enter into a formal arrangement such as a company voluntary arrangement, Partnership Voluntary Arrangement or a Pre pack. It is possible to have an informal arrangement with creditors but it tends to work where there is just one or two creditors, most notably HMRC. Where there are lots of creditors a formal process ensures a degree of control over the process.
If some creditors become particularly aggressive in collecting a debt such as issuing a winding up petition it can have serious consequences.
Request our free 40-page guide for worried directors and find all the answers you need to help turn your business around.
So ensure that you ask for help and advice as soon as debts become a worry. Call us on 08009700539 as the earlier that you address it the easier it is to solve.