Many small businesses operate on a very tight budget. Figures published by the Insolvency Service during 2005 show that 12,893 companies went into liquidation and 10,839 self-employed people were declared bankrupt. The need for debt advice for small businesses has never before been in such demand.
As many of you know, careful planning is vital to the success of a business but many of the self-employed fail to do this. When in financial difficulties, it is crucial to work through a budget of what comes in and goes out of the business. By their nature, many businesses will have a fluctuation in trade. It is therefore important to take a realistic average e.g. the last three to six months.
You should also put money aside for tax and national insurance for when the bill becomes due. It is a common mistake to draw income from the business without allowing for tax. This leaves the business with a tax bill it can not afford to pay. The budget sheet on Business Debtline’s website will roughly work this figure out for you. Completing a business budget will allow you to work out how much of an income you can actually draw from the business. You can then use this income as the basis of a household budget along with any other income or benefits you are entitled to receive. You can then deduct your essential household expenditure to see what you have left to pay to your creditors.
At this stage, it is important to separate your debts into priority and non-priority. Priority debts are those which mean you lose something if you do not pay and/or you will be unable to continue to trade without e.g. business leases, business rates, key suppliers, tax and utilities. Non-priority debts would be debts which do not have as many powers to recover their money, such as credit cards and personal loans.
It is important to deal with your priority debts first and if behind with payments, you should look to make offers based on the contractual payment plus something towards the arrears. Some creditors will expect these arrangements to be over a fairly short period of time. Base your offers on what your budget shows you can afford to pay. It is important to do this as soon as possible. Once you have successfully managed to negotiate payment arrangements with these creditors, you can then make offers to your non-priority creditors. This is done on a pro rata basis; see the website for more details.
It is important that if you feel that your business is struggling financially that you seek advice as early as possible. Frequent feedback that we receive from our clients is that they wished they had contacted us earlier.
Business Debtline is a charity which offers free, impartial confidential advice for self-employed individuals and small businesses. During 2005 we received 22,000 calls to our helpline. This number is expected to increase to 30,000 for this year. Our experience at Business Debtline is that often, small businesses cannot afford to pay for specialist advice at times when they need it most. Business Debtline is able to offer this advice for free giving them a better chance of survival.
Business Debtline is available on free phone number 0800 197 6026 Monday –Friday between 9.00-5.00. Our range of self-help packs is also available on our website at www.bdl.org.uk.
