As a UK business director who is struggling with debt, finding the most accurate information is challenging. There’s a lot of conflicting information and a lot of myths! We’re here to tell you about four business debt myths and what’s actually true.
Before we start, it’s important that you know that you are not the only one. It’s very tough for business owners at the moment, and unfortunately, it doesn’t seem to be getting any easier.
Myth 1: Struggling with business debt means there is no future for a business.
This is simply not true. When it comes to being a company director, financial hiccups are part of the journey in many cases. It doesn’t matter how big or small your business is.
It’s all about having the right strategies in place to get through these difficult times. Most of the time, they will be short-term problems. If you’re dealing with some short-term cash flow issues, you might decide that it’s a good idea to speak to your creditors directly. Being honest means they may be able to offer you better payment terms.
It might be that you say I can’t pay it all today, but I can give you this much, and I’ll see how the situation is in a few weeks. Communication is crucial in these circumstances.
If you owe money to HMRC, they may offer you a time-to-pay arrangement to help take the immediate pressure off you. They may be able to extend your debt payment period by 12 – 24 months. Bear in mind that you may be charged more interest for this, but if it helps you in the short term, it’s worth considering.
Another option is to consider a company voluntary arrangement or CVA. This may work for companies who can’t see things settling for around 12 – 18 months, but after that time, things should be better. A CVA involves appointing an insolvency practitioner to look at all of your debts and put them into one pot. They will then negotiate with creditors, and you’ll be able to pay these debts over five years. To be able to get these approved, you’ll need to demonstrate that your business would be profitable without this debt and that you can afford to pay it. 75% of your creditors must agree to the arrangement.
You could also consider a pre-pack liquidation. This is when you set up a new company and buy the assets from the old company. Then, you’re free to continue with the new business.
Many companies have had to weather some serious storms, but they’ve gotten through them by taking the right steps. It doesn’t mean your business is a failure if you’re dealing with company debts.
Myth 2: Debt signifies bad business decisions
This is not true. So many elements could have led to you taking on debt for your business. There are so many external factors that can have an effect. We’ve dealt with many of these in recent years, from the pandemic to the cost of living crisis. Many companies have had to take on more debt to get through these hard times. It’s all about learning and adapting to overcome these scenarios.
It’s important to consider where the problem has started. Once you’ve identified the problem, you need to think about the solutions that can help you overcome them. It’s all about moving forward.
Myth 3: Business debts and terms are final with no wiggle room.
We hear this often, and it’s not always true. Many people come to us thinking that liquidation is their only option when they are struggling. After careful consideration, we often conclude that this is not actually the case. Instead, the best thing to do in some situations is to contact your creditors and let them know that you can’t pay them yet, but you can over a longer period of time.
We spoke to a long-standing director recently who has always paid their HMRC debts on time, but due to the current market conditions, he is going to struggle to pay them on time. The director came to us thinking they needed to liquidate, but we chatted with them and concluded that this was not their only option. Instead, we told them to speak to HMRC and ask for longer payment terms.
We know that asking for more time to pay isn’t the easiest thing to do, but it can help to reduce stress for you. Creditors will be more lenient with you if you have been honest with them. These difficult conversations can be helpful in giving your business the breathing space it needs.
Myth 4: If I ignore my business debt, it will go away.
If you are constantly struggling to pay your debts, you really need to address the problem. If you continue to ignore the problem, it will only get worse. You need to deal with it head-on, get all of the information in front of you and establish who is owed what, when it is due, and what money is coming in. Think about what could happen in the next month, worst case and best case scenario.
By dealing with the information in a clear way, you can see what needs to be done. You might need to seek professional advice to understand all of your options. Make sure that you seek advice early. The earlier that you seek advice, the more options you will have available to you.
We hope this blog has been helpful regarding business debt myths. Please feel free to contact us for any advice – we’re more than happy to help.
I'm Chris Worden, Managing Director at Director First. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice.
