Setting up a business can involve significant outlays, for start-up costs, equipment, and office space. And sometimes, there are necessary debts, taken on in the hope that revenue will soon become enough to cover the debt early on. Unfortunately, it isn’t always that simple.
In this guide we’ll explore business debt in greater detail, from what it is, and what causes business debt, to the information and business debt solutions you need to help you keep your business in the black.
Common causes of business debt
There are many reasons you can fall into financial distress as a business owner. The creditors you’re in debt to will continuously demand payment, regardless of your cash flow issues, which is why companies should keep an eye out for the following.
Unpaid invoices from business suppliers
If you run your own business, you expect to be paid promptly for any work or service you provide. But unpaid invoices can have a massive impact on your business cash flow and cause major delays in your debt repayments because you simply don’t have the funds to cover them.
Advance orders for goods or services
Business debt can also happen if your business relies on advance orders or bookings, as this will seriously impact the amount of revenue you can expect to have coming in. This will not only make it difficult for you to deal with your debts but can affect your business as a whole due to needing funds to keep it functioning.
Business finance emergencies
Life is unpredictable, so there are bound to be emergencies that will present you with unexpected business costs. These often put a spanner in the works when it comes to your cash flow and can leave your finances stretched and your stress levels high.
Much like life, the market is also unpredictable and everchanging. Changes to market conditions can result in business being tough and your revenue being lower, leaving you struggling to make ends meet unless it picks up.
What do you do when your business is in debt?
If your business is having debt problems and your worried about insolvency, or even your personal liability for your business finances, the first course of action is always get in touch with the people you owe money to.
Contact your creditors
If you’re a small business owner (i.e. self-employed or a sole trader) you might owe income tax, VAT, or national insurance to HMRC. If you’re a limited company, you might carry unpaid business rates on your business premises.
Whatever your debts, make sure you contact your creditors to see if you can come to an arrangement. Individuals who let their business debt build up without acting on it are more likely to face severe consequences, up to and including court action.
One phone call to your creditor could result in you coming up with a repayment plan, known as a Company Voluntary Arrangement (CVA). A CVA would allow you to settle your debts by paying back a portion of what you owe, putting the worst of your money worries behind you.
Speak to a debt adviser
If you’re creditors aren’t willing to work with you to resolve your debts, it’s time for you to get business debt advice. There are ways you can self-help, like taking advice from one of several UK debt charities, from the Money Advice Trust to the business debtline.
Debt charities are set up to offer free debt advice to anyone with money issues, and some even specialise in business debt advice.
You can verify these charities through their charity number, and they should be able to offer you advice, guidance, and even formal debt solutions, free of charge.
In addition to debt charities, there are debt management companies like Creditfix and its sister company Carrington Dean.
Debt management companies specialise in debt solutions for both individuals and businesses, and have helped hundreds of thousands of people in the UK put their debt problems behind them.
Tips to deal with business debts
If your business falls into debt, there’s a high risk of being declared bankrupt, even if you do have the potential to trade successfully. You may be able to reduce the chances of this happening by taking some of the following steps:
Sell non-essential company assets
Selling assets that you don’t necessarily need can be a great way to drum up some much-needed money when times are tight. It can also be a great way to save you some cash if you’re able to sell something that is generally expensive to run, whether it’s a vehicle, machinery or something else that’s no longer needed.
Reduce your business overheads
Simple measures like downsizing or relocating your office can be a great way to free up funds to ensure that you always have money available to cover your debt repayments.
Cancel non-essential business subscriptions
When you’re struggling with business debts, it’s important to look at your finances as a whole. Cancelling non-essential subscriptions like memberships of trade bodies can save you money each month and free up more funds to repay your debts.
Where can I get business debt advice?
Whether you’re a sole trader having trouble with HMRC, or a limited company struggling with priority debt, Creditfix has an insolvency solution for you. We’re the UK’s biggest provider of debt solutions, and we can provide you the help and information you need to get back on track.
Our debt advisers are specialists in all types of debt, and can work with you to find the best possible debt solution for you and your business. Together we can find a way to ease your debt concerns and put a plan in place so you can continue trading.
You can find more information about our debt solutions on the Creditfix website, or for free, confidential debt help and advice, call us today – the phone number is 0800 0431 431.