For many people, the thought of running their own business seems like the perfect way to make a living. But being your own boss isn’t always as good as it sounds, especially when times are tough. If it’s getting hard to make ends meet, and your business is getting into debt, you need to try and manage the problem before it gets out of hand.
As you’d expect, businesses get into debt when there is more money leaving the business, that is coming into it. Lowering costs could be one way to reduce the amount of money leaving your business, and you could look to increase the money the business makes by seeing what benefits or grants you or your company may be eligible for. However, this might not always be enough to solve all your business debts.
Most businesses will find that they have priority debts and secondary debts. You should deal with all your business debts, but priority debts are the most important and should be dealt with first. These are debts like rent, business rates, and taxes, where there could be severe consequences if they are not paid. You may be evicted, have your power cut off, even sent to prison. Secondary debts are to creditors who don’t have the same ability to recover their money, such as credit card companies and unsecured loans.
It can be possible to make an informal arrangement with your creditors to pay back the money you owe them. Most will usually accept this as a solution if you can show that your business debt is a temporary problem. More serious, or long term debt issues, may require a more formal resolution, in the form of a Company Voluntary Arrangement. Both of these options will mean you are still able to trade while keeping your business debts under control.
When there doesn’t seem any realistic possibility of repaying your business debts, and the company has become insolvent, Administration can help you keep trading while the issue is resolved. If this doesn’t look possible, there may be no other option but to cease trading, in which case Receivership or Liquidation would sell off the company’s assets to repay creditors.
If you are finding that running your own business isn’t what you thought it would be, and your debts are becoming an issue, it’s important to get advice as soon as possible. Speak to someone who is qualified to help resolve issues with business debts – your bank manager might be a good place to start.