ARE YOU WEIGHED DOWN BY BOTH BUSINESS AND PERSONAL DEBT?
Article by Bev Budsworth MD of The Business Debt Advisor
It is almost impossible to avoid personal exposure to debt when setting up your limited company/business.
Banks, other funders, suppliers, leasing companies all request personal guarantees. Frequently business owners will also use personal loans as start up or to support cash flow in lean trading months.
According to a survey by Wirefund, a small business finance provider in 2016, 55% of the business owners did not know what a personal guarantee was and 21% thought that if the business failed they would be allowed to pay back what they could afford.
Finance backed by a personal guarantee means if your company fails, you will be liable for the sums you have guaranteed. If you cannot pay the sums, action could include a judgment, followed by Bailiffs turning up or a charge being put on your house or even bankruptcy.
Setting up a business is scary. Without personal guarantees you are unlikely to be given finance. It is also a catch 22 scenario – a business with strong results, good credit rating will be offered finance but you have to get their first.
Fear of failure keeps business owners trapped
Fear is one of the most powerful forces in life. It effects the decisions you make, the actions you take and the outcomes you achieve. The primary role of fear is to protect you but it significantly becomes a massive obstacle to achieving progress.
According to Psychology today, the fear of failure can cause even bigger problems that affect a person’s physical and mental health. People with fear of failure often experience fatigue and low energy, they feel emotionally drained, they are more dissatisfied with their lives, they experience chronic worry and hopelessness, and their performance in the relevant domains becomes objectively worse.
In my view, the fear of a business failing and the implications for the directors in terms of personal exposure to debt, is one of the most debilitating experiences that an individual can experience. You get caught in a spiral of fear which prevents you from acting logically. So often I encounter situations where directors have continued to pump personal funds into a business and actually they know they are sleep walking into utter disaster.
Lying awake at night constantly beating yourself up will make you ill. It takes courage to talk to someone but you will almost immediately feel better.
Over the years I have worked with psychologists, one of which became a personal friend, Sue Smith. She introduced me to the concept of E plus R = O.
EVENT PLUS RESPONSE EQUALS OUTCOME
Lives can be utterly ruined when individuals constantly beat themselves up about their current position. It is important to realise that behind most successful business person is a failure or near failure. So event is accepting you are where you are, you cannot change the past and allow yourself to look forward.
Your recovery plan needs to have a goal. Where do you want to get to, what does it feel like when you get there. The outcome could be dealing with the debt, arranging payment plans which are affordable and finding your self-respect.
Once you have identified what your outcomes looks like, it time to develop your response to get to your outcome.
This is developing your plan to get to your outcome. I recommend having a macro and a micro plan.
Your macro plan is how you are going to get from a business that is failing, to a position where your earnings are more secure and your debt is being dealt with. This could be winding up your business and proposing either an informal or formal arrangement with your creditors. The plan depends on your circumstances, your assets and debts and also your income and expenditure. There are tools online such as our debt calculator that will help you identify your debt, how much this is costing and how much money you actually have remaining at the month end to pay towards your debt.
This exercise is vital and will help put you back in control. If you struggle to do this on your own, our business debt advisor team will work through the figures with you. You can do this on the phone or pop into our offices in Manchester if you are local.
It’s vital your plan includes things you do on a daily basis to make you feel better. You have got to get yourself breathing – long walks, gym work outs, whatever physical exercise you enjoy is crucial. Cut out the alcohol, it makes anxiety so much worse. De-clutter – get your paperwork in order. I recently had an individual come and see us armed with 2 very large bags of unopened mail. We went through the mail, much of which was junk and actually his problem was not half as bad as he thought it was.
There is always a solution
We have a decent rescue culture in UK which can include voluntary arrangements for both businesses and individuals. Your business may be capable of being rescued with a CVA which would allow your company to pay its debt back in affordable monthly instalments over a period of 3 to 5 years.
If your business is not viable, it can be wound up. You could start again with a new company or operate as self employed. If the winding up of the business leaves you with personal debt, this could be dealt with by an Individual Voluntary Arrangement, IVA, which will let you pay back your debt again in monthly instalments.
Taking steps to wind up your company does need careful consideration. Call our team on 0333999689 or email us at email@example.com
The Business Debt Advisor is a trading division of The Debt Advisor Ltd which is authorised and regulated by The Financial Conduct Authority number 659920. Beverley Budsworth is the MD and is also an Insolvency Practitioner regulated by The Insolvency Practitioners Association.