Setting up or running a business might seem like a dream opportunity for many but it can come at a price.
Whether you’re a sole trader or run a limited company, there can be significant outlays ranging from start-up costs to equipment, tax and business rates as well as running a business premises.
While these are important business debts repaying what you owe isn’t always easy.
What is considered business debt?
If you have credit card debt from a company expense card or owe money used for your business that you cannot pay, it is considered business debt.No matter what size of business you run, every company is forced to take on some sort of business debt at one point or another.
They say time is money and as it can take time for a business to establish itself, it’s easy for debt to build up.
Put simply any debt that is accrued in relation to your business, whether to suppliers, vendors or the bank, is classed as a business debt.
Debt can be a natural part of setting up a business and shouldn’t be too concerning. However, if you find yourself unable to stay on top of what you owe, particularly priority debts, it’s important to find debt help as soon as possible.
If you’re a business owner you can find yourself in financial hardship for a number of reasons.
No two owners will find themselves in the same situation – all businesses have their own structures, markets and business models so the reasons behind business debt can vary.
There are, however, common themes behind the problem debts faced by small business owners and sole traders.
Changes in market conditions is one of the most common and most understandable reasons a business may find itself in financial hardship.
Nothing in life is certain. That means despite best efforts by industry experts and analysists, it’s impossible to predict future market conditions.
The pandemic is a perfect example of how a change in market conditions, out with everyone’s control, can impact a business’ bottom line in ways we could never imagine.
No industry escaped the turmoil brought by uncertain lockdowns, however, the hospitality sector and retail that suffered when their customer base were confined to their homes. Meanwhile, businesses were still expected to stay on top of any bills with no money coming in.
This is something small business owners and those who are self-employed face the issue of non-payment more than others.
It’s a sad reality that many sole traders find themselves battling for payment when clients refuse to pay for the goods or services provided. This is often because some clients don’t believe that a small business would have the funds to force court action for non-payment.
One client failing to pay what they owe can be the difference between keeping things ticking over and business debt.
The most obvious cause of business debt is not staying on top of your budget.
Having a handle on business finance is vital not only if you’re going to avoid debt in the future but also expand.
Project costs should always be accounted for to ensure that you’re able to pay any outgoings owed. Failure to do so could lead to you turning to expensive lines of credit such as a credit card or loan to cover costs.
When dealing with business debt it’s important to be aware of what debts should take priority over others.
If you find yourself struggling with business debt it’s important to act quickly.
The people and businesses you owe money to, also known as creditors, will take action to recover debts owed. This can range from recruiting enforcement agents to collect what’s owed to court action.
When dealing with business debt it’s important to be aware of what debts should take priority over others. You should always take steps to manage debts that could result in the most serious consequences first – these are known as priority debts. Failure to do so could result in the loss of assets such as your business premises.
Examples of priority debts include:
You should never ignore a priority debt, especially those like tax and national insurance that fall under the purview of Her Majesty’s Revenue & Customs (HMRC).
Failure to pay-non priority debts still comes with consequences but not as severe as priority debts.
Examples of non-priority debts include:
It was literally the best decision of my life, and it has actually changed my life, cheesy as that sounds, it has changed my life.
Paige , IVA Customer
Dealing with debt problems in your business may seem daunting but it’s important not to bury your head in the sand.
You should take steps to avoid further action from creditors and avoid serious consequences such as a visit from high court enforcement officers.
Failure to stay on top of your business finances should also lead to life changing consequences such as bankruptcy, so it’s in your best interest to take steps to resolve the situation as soon as possible.
If you’re unable to stay on top of your current payment arrangement you should speak with your creditors directly.
This may be the last thing you want to do when you’re not able to manage your debt but it’s important you don’t let pride get the better of you.
Explain your situation and ask if you can agree to an extended repayment plan that works with your current financial circumstances.
If you explain the reasons behind a late payment to a creditor and show your commitment to repaying, they may be willing to work with you.
Sometimes simple measures can make the biggest difference. If you’re worried about business debt you should consider relocating or downsizing your office space, for example, to free up funds.
It might also be worth considering hiring an accountant for a short period to discover where your business could save on money to go towards your debt.
This can be the toughest cost saving of all. Many small business owners form a close relationship with their staff as they build their brand but the reality is having too many on the books can impact your ability to repay your debt.
If you’ve noticed a downturn in business or are still chasing a long overdue invoice, don’t be afraid to consider restructuring your team no matter how hard it may seem.
This can be an easy way to release additional funds to go towards any debt repayments if you’re experiencing a cash flow problem.
Do you have unused equipment lying around or do you have vehicles or machinery you could sell? Doing so could release immediate funds while saving more money in the long term.
Just as talking about personal debts isn’t easy, it’s hard to talk about business debt too.
However, if you are self-employed or run a small business and are unable to pay what you you, you should seek professional debt advice.
There’s a wide range of help available – including from Financial Conduct Authority regulated charities such as the Money Advice Trust.
You can also find advice from Your Debt Expert. Our experienced team can help halt court action, freeze interest and charges and reduce business debts to one affordable monthly payment through a debt solution tailored to your needs.
To find out more, call 0800 082 8086
Advice and support is also available at Money Helper.
*A debt write off amount of between 25% and 75% is realistic, however, the debt write off amount for each customer differs depending on their individual financial circumstances and is subject to the approval of their creditors. The example provided has been achieved by 10% of our IVA customers in the last 12 months.
Your Debt Expert is a trading style of Carrington Dean Group Limited. Carrington Dean Group Limited is authorised and regulated by the Financial Conduct Authority with firm reference number 674395.
Regent House, 5th Floor, 76 Renfield Street, Glasgow, G2 1NQ.
Company number: SC225672
Data protection number: ZA351745
IP number: 9287
David Rankin, Katy Walker and Tracy Whittaker are authorised in the UK to act as Insolvency Practitioners by the Insolvency Practitioners Association.
** This Trustpilot account is for Creditfix Limited, the company that will administer IVAs. Your Debt Expert is a trading style of Carrington Dean Group Limited which is a member of the Creditfix Group
This website is in no way approved by the Government. The product (IVA) we administer through the group and process with our Insolvency Practitioners is covered under the following legislation: The Insolvency Act of 1986 (amended by the Insolvency Act 2000 and the Enterprise Act 2002) introduced a new procedure whereby a debtor could come to an arrangement with their creditors to pay their debts in full or in part over time as an alternative to bankruptcy. Our advisors will go through all your debt options including IVA (Individual Voluntary Arrangement) opportunities which are available for people living in England, Wales and Northern Ireland. Help can only be offered following an initial fact-finding process. An Individual Voluntary Arrangement (‘IVA’) is subject to the customer meeting qualifying criteria and gaining creditor acceptance. Initial advice is free and there is no obligation to proceed into an arrangement. Arrangement fees will be clearly explained to you in writing by your advisor.