Business Debt Management

Introduction

Each year there are 500,000 start-ups in the UK. By the end of the third year 300,000 of these new businesses will fail. No one sets out to be part of that statistic.However, circumstances can conspire against us and force the business into failure. It is in no ones best interest that the business should fail. East Anglian Debt Management Ltd can offer the expertise to avoid such an eventuality.

Small / Medium Enterprises (SME’s) fall into two main categories:

1. Sole Traders and Partnerships;
2. Limited Companies;

Reasons for Failure:

Undercapitalised:

Traditionally UK banks are reluctant to fund start-ups unless some tangible asset is offered as security. As a result, funding the growth of the business becomes difficult and is funded by ignoring debts accruing to the Inland Revenue and Customs and Excise. When these become due the difficulties of the business become obvious.

Dependence on one large customer:

Over the past two years EADM had been involved with the liquidations of several significant businesses, all of which concentrated on offering a service to a small group of customers. The temptation to seek large contracts at the expense of a spread of business is a dangerous strategy. Any change in the price structure will impact adversely on the business cash flow.

World events:

These factors are beyond our control. Events such as 9/11, natural disasters etc cannot be anticipated. Their impact on our sector of the market can be catastrophic.

Bad Management Decisions:

Making mistakes is part of the human condition. All of us take courses of action, which we believe will move the enterprise to a new level. This is often done on the basis of the performance of third parties. If they fail, the effect on our business can be terminal.

When faced with these difficulties most of us will attempt one of the following strategies:

1. Fire fighting:

   Juggling the cash flow to meet the requirements of the most predatory creditor. In most cases this informal approach will not work.

2. Debt Consolidation:

   In most cases raising capital to pay off historic debts makes no sense. It is merely shifting ownership of the debt and in the case of a limited company, often changing the stakes of the debt. Offering to raise money on an unencumbered asset to satisfy a debt where limited liability exists is not advisable.

3. Arrangement with creditors:

   IVA for Sole Trader / Partnerships and CVA for Limited Companies. These are proactive solutions that deal with the problems before they spiral out of control.

4. Debt Management Program:

   This is a short-term program offering to repay the debt in full over a six-month period. Each creditor rightly expects to receive payment in full for goods or services supplied. If a business has a temporary cash flow problem it may be possible to spread the payments to creditors in an informal arrangement over a period of up to six months. Provided the terms are adhered to creditors are likely to prefer the Debt Management Plan option to the longer-term solutions offered in the IVA / CVA.