Most people in business will have suffered a sleepless night or two when cash-flow problems loom, but where do business people turn to when
they need someone to help? Loved ones are usually out of the question as
they will inevitably have been contaminated by the emotion of the situation
anyway. The old days are gone when you could sit down and talk to your local
branch manager who knew you well and had the authority to make the decision for you.
Nowadays, you are more likely to be sold something completely worthless by a
‘relationship’ manager who is probably too young to even have had one – a
relationship that is. The Citizens Advice Bureau are not in a position to
advise if you mention the word business and debts in the same sentence and
besides, they are becoming few and far between as government cuts dig deeper.
A religious belief of some kind can provide someone who
simply listens, but you are unlikely to see a burning bush, or have a revelation that indicates a way forward.
It seems that the internet has been the saviour of some who are able enough to switch on the laptop and search for help. Certainly we get our
share of truly dreadful and often heart breaking accounts of how someone has
found themselves in difficulty.
Despite what most believe, business people in trouble are not
all directors shirking their responsibilities, though it is easy to see why it
may appear so when you are a creditor and a company that owes you money enters company liquidation. From experience
usually around 20% are forced to close through an outside unforeseeable
incident such as stroke, heart attack, sudden death, or the impact of a family
death, or long term illness. A further 30% are often guilty of no more than
putting too much faith in a particular project, or company, and OK it may be mismanagement, or simple inexperience, but we all have to learn. Making mistakes whilst learning can be a very
expensive way to learn, so this should be avoided at all costs – consult a
professional.
For most small businesses they may turn to their accountant, but this is hardly fair on them as in most cases they will see a client once or
twice a year if they are lucky. The medium sized companies may have an in-house
bookkeeper/accountant, but they will be too close to the problem and
unfortunately in my experience usually, unfairly, carry some or all of the
blame for the company predicament. If you are a sole trader or a partner in
business it is likely that the first person you speak to is either your life
partner, and or business partner. Either is a mistake and often leads to the
‘blame game’ which in turn applies negative pressure on the relationship. It is
a sad fact of life that around 60% of those contacting us will be separated, divorced
or splitting up. We sometimes forget the impact on families business stress can
have.
If the business is not viable and you are a sole trader then
there is no difference between personal and business debts. It is not better,
as was suggested by a recent client that; ‘if you are a partnership then your
debts are halved aren’t they?’ The answer is it is not as simple as that and it
can be worse in some cases where, as is usual, one partner has no assets and
the other has lots. Unless you have a limited liability partnership and or a
legally binding partnership agreement then the debts will be joint and several.
So if your partner is about to sign a contract for a new BMW on the partnership
business account you may want to hold back the signature as you could end up
paying for it if things go badly.
You would think directors would do better when the company
has limited liability? Not so, as banks and suppliers obtain more
personal guarantees and security for provision of supplies or lending. Unfortunately
if the company does end up in liquidation the insolvency practitioner is not
allowed to help the director by regulation. If you think about it this makes
sense as the insolvency practitioner acts in the best interests of the
creditors not directors. Whilst an insolvency practitioner must have due care
for a director with a personal guarantee they cannot give direct advice on the
personal guarantee when acting for the bank as this is a clear conflict of
interests. Of course the biggest taboo subject for an insolvency practitioner
and guaranteed to make him/her to go pale prior to being engaged is the subject
of an overdrawn directors' loan account. In liquidation, this can have very serious
personal implications for any director and the insolvency practitioner will be
duty bound to pursue these on behalf of the creditors, even to the point of bankruptcy. Remember who the ‘practitioner’ is acting for? This situation should be
discussed in detail if an insolvent liquidation is being considered as a
potential solution. There are unscrupulous ‘practitioners’ who are well known in the
business who will actively seek out naïve directors seeking a ‘liquidation bargain’
and thinking that they are being adept by obtaining the cheapest liquidation on the
internet, the truth is this could not be further from the truth. If a
liquidation fee seems too good to be true then it probably is and there will
only be one loser.
If a liquidation is being recommended to you as a solution
ask direct questions and get straight answers and if need be get confirmation
in writing as to what the process will be, before, during and after
liquidation. If in doubt, ask to speak to past clients and check for
testimonials on the ‘practitioners’ website. If a director entering into
liquidation does not perform these very simple checks then they do so at their
peril. Just as the internet can be a
saviour it can also be a dangerous place too.
Your accountant may know someone who will not simply and
automatically think of liquidation as the first port of call and if you have
seen previous blogs you will know this is unlikely to be a modern insolvency
practitioner. You knew I was going to say "seek out a business turnaround consultant", but I genuinely think this is the best option in today's business climate. They are used to working in high pressure and insolvent environments
and if they are any good they will provide initial free advice and even
solutions for you.
Whether you are a director, sole trader, or a partner, if you
are having severe cash-flow problems and you are worried about your personal
situation you should be speaking to someone who looks after your interests
whilst having due care for the creditors? Someone who is well used to
negotiating with creditors and someone who has earned their stripes through
having managed many businesses, gaining hard business experience. Doesn’t that
make more sense? Do yourself a favour and seek out a business turnaround consultant, you can learn more here at the Turnaround Management Association http://www.tma-uk.org/.
