Anita Brook’s blog: Business debt – don’t bury your head in the sand

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Anita Brook is founder of Accounts Assist a growing firm of Chartered Accountants. She’s been advising small business, sole traders and consultants for 12 years.

Business debt – don’t bury your head in the sand

FMWF reported this week that female insolvency jumped by 22 per cent in the 12 months to August, compared with the previous year: . While many of these women are accused of spending beyond their means, borrowing money they just don’t have, some are business owners who have suffered at the hands of a failing market or have lost their jobs due to the massive increase in redundancies.

Advice for business owners

Cash flow: To prevent insolvency in the first place you need to make sure that your cash flow is healthy. To achieve this, your aim should be to speed up inflows and slow down outflows. Ways to do this include:

• Invoicing as soon as a job is complete
• Taking a deposit for high-value jobs, particularly those with bought-in costs paid for by your business
• Implementing stage payments for lengthy jobs
• Chasing late payments
• Considering borrowing – this should only be looked at as a temporary solution if the funds to pay it back will definitely appear.

Debt management: If your business is in debt, before you panic, take stock of the situation – it may be that it’s not as bad as you think. Prioritising debt is imperative; staving off county court judgements is hugely important to the health of your credit rating, ensuring you can continue to trade in the future:

• Calculate your total debt
• Work out how much you can afford to pay back each month
• Negotiate with creditors: It is in their interest to be understanding as they want their money back – even if it is paid back slower than originally agreed
• Tackle priority debts first: You must pay your staff, the tax man and anyone that’s threatening court action, first.

Talk to your accountant: Accountants (and solicitors) are usually able to provide sound financial advice. If they already work with you, then they should have a good understanding of your business.

If you don’t have an accountant, you really should get one – business debt or no business debt. Many accountants and solicitors have particular areas of expertise; ideally you should try to consult one whose specialist knowledge fits in with your problem.

Recommendation from friends and fellow business people is always a good place to start. Beyond that there are a number of professional bodies who will be able to provide lists based on geographical location and sometimes areas of expertise:

• The Institute of Chartered Accountants in England and Wales (ICAEW): http://www.icaewfirms.co.uk/business/index.php and Scotland: http://www.icas.org.uk/directory/
• The Association of Chartered Accountants (ACCA): http://www.accaglobal.com/general/finding/
• The Chartered Institute of Taxation: http://www.tax.org.uk/.

Seek free advice: In addition to accountants and solicitors, there are several bodies that offer free advice on business debt:

• The Citizens Advice Bureau (CAB): http://www.adviceguide.org.uk/
• Business Debtline: http://www.bdl.org.uk/index.asp
• The National Debtline: http://www.nationaldebtline.co.uk/
• Advice UK: http://www.adviceuk.org.uk/want-help/moneyanddebt

Borrow wisely: If you do need to borrow to fill a temporary cash flow problem or as part of a more permanent solution to manage debt, make sure you borrow wisely, do your research and don’t get suckered in to detrimental deals – some debt consolidation programmes may result in you paying more money than you actually owe. You can check the lending credentials of an organisation on the Financial Services Authority (FSA) website, money made clear: http://www.moneymadeclear.org.uk/

What’s most important is that you take steps to deal with a problem, preferably before it gets out of hand.

Burying your head in the sand over debt will only make it worse and by seeking the help and advice of professionals, you may discover that it’s not as bad as you thought and at least the burden will be shared.

>> For more expert advice about running your business take a look at our Business Tips section here.

Tags: administration, Anita Brook, Business Advice, Crisis Management, debt, Launching in a recession, Personal Debt Management

Posted by Anita Brook on Friday, October 22nd, 2010 at 7:37 am.

Filed under Ask an Expert, Feature, Features, Personal Finance, SMEs, Starting a Business, Tagged as: , administration, Anita Brook, Business Advice, Crisis Management, debt, Launching in a recession, Personal Debt Management.