Around the world, many small businesses are still struggling to get back on their feet after COVID19. In the UK, there has been the added disruption of Brexit. Unsurprisingly, this has led to many small businesses being forced to take on debt. With that in mind, here is some advice on debt management for small businesses.
Start by working out if you are solvent
In basic terms, solvency for businesses means the same as it does for private individuals. Essentially, it means that you can afford to pay your bills including making at least the minimum payments on your debts.
For businesses, however, there is the twist that it is illegal for businesses to continue to trade while insolvent. If you are in this position or close to it, then you must get professional help immediately. Even if you can’t save your businesses, you may be able to save yourself from being pursued for company debts.
Keep in mind that insolvency does not have to mean the end of your business
Just as insolvency does not spell the end of everything for individuals, it does not have to spell the end of everything for businesses. There may be measures you can take that allow you to go on trading and rebuild your company. For example, over recent years, there have been some very high-profile examples of companies using Company Voluntary Agreements (CVAs) to get back on financial track.
If you’re a sole trader, consider incorporating
For clarity, incorporation does not entirely protect you from being held personally liable for company debts. That’s why it’s vital that you follow the correct procedures if you are in (or close to) an insolvency situation. That’s why you’re likely to need professional advice.
With that said, it does create a default assumption that a company’s debts lie with the company rather than with the individual. This assumption will stand unless there is a compelling reason to overrule it such as evidence of deliberate fraud.
Make sure you have plenty of insurance
Insurance is a manageable expense that you can budget for. It will save you from the potential consequences of unplanned expenses. That means, if you are dealing with debt, you should not be cutting back on it, quite the opposite. You should be making absolutely sure that you have all the cover you need.
Work on your credit record
Credit records for businesses are essentially identical to credit records for private individuals. They play a major role in determining if your business qualifies for credit at all and, if it does, at what rate. Just as with personal credit records, it makes sense to take as much care as you can of your business’ credit record.
Get the best credit products you can
Commit to keeping track of your ability to qualify for credit products and moving your debt whenever it is justified. Also, be prepared to think outside the box a little. For example, negotiate with creditors, look for niche lenders (e.g. credit unions) and see if you can find other sources of funding.
Other sources of funding does not have to mean government grants or even grants of any description. These can be great if you can get them but the competition for them is often fierce. It can also mean options such as private investment and/or crowdfunding.
Manage your budget
In a business, your budget is closely linked to your operations. This means that managing one implies managing the other. For smaller businesses, surviving until better times could require some major adjustments to operating practices. In particular, it could mean giving up permanent, real-world business premises. Businesses that still want/or need to maintain a real-world presence could do this through pop-up and/or mobile outlets.
