What To Do When Your Business Is In Debt

If you’ve started up your own business, chances are that you’re a driven individual with the desire to make it on your own. It’s hardly surprising, then, that many entrepreneurs find it hard to deal with business debt. It can be difficult to admit that the company which you spent so long building might not be able to survive, so instead you ignore letters from your creditors and push the issue to the back of your mind, subconsciously hoping and praying that a large order or sudden influx of new customers will enable you to grow your way out of debt. Sadly, this is not an eventuality that you can realistically rely upon. It’s time to tackle the problem head on.

Taking Stock

The first step towards dealing with business debt is to assess your current situation. How much do you owe, and to whom? How does this compare with current and projected profits? You could also take this opportunity to reassess your business plan and correct any overly optimistic predictions concerning income and growth. At this stage, it might be a good idea to obtain business insolvency advice. A professional eye is more likely to spot errors and areas which need change. They may be able to suggest alterations which will mean that you are able to cover the debt after all.

Negotiating Repayment

Ignoring your creditors’ letters won’t work forever. Instead, you should reply to them, asking to work out a repayment plan. Always remember that lenders and suppliers would rather avoid taking things further - they want to keep you as a profitable customer, and have no desire to see your company be liquidated. They will almost always respond favourably to a reasonable arrangement.

Statutory Demands

If you put things off for too long, you may receive a different type of letter from a creditor - a statutory demand for repayment. This means that you have only a few weeks to pay your entire debt, negotiate a repayment plan, or dispute the claim. Should the time period elapse, the creditor will be eligible to apply for your business to be liquidated with a winding up order.

Getting Help With a CVA

If you are unable to make arrangements with the creditor and fear that your business could be wound up by the court, it is best to consider a CVA (Company Voluntary Agreement). Under this scheme, a licensed insolvency practitioner will gain access to the company’s books. They will assess whether or not the business is fundamentally viable and, if it is, will draw up a plan to repay creditors using future profits over a period of up to 5 years. The idea is that all parties are best served if the business remains a going concern. Provided 75% of creditors agree, the plan will be put into place and all legal proceedings will be stopped.