Business debt: When it rains, it pours

It seems that everywhere you look there’s more and more bad news around the corner. I try to keep the glass half full, but the reality is that it is going to be a struggle for many people and businesses out there, if not already.

Cast your mind back just over a year; we were exiting the pandemic and the Government was gradually pulling the lifeline support for businesses. Furlough was being tapered off and grants ending. They now had to stand on their own two feet.

The immediate concern for many was to try to return to some sort of ‘normal’ trade, while having to make additional profit to repay borrowings taken through the pandemic. This led to an immediate raft of company insolvencies – those who simply could not afford to meet their current liabilities, while repaying the borrowed debt.

Let’s not forget about Brexit! Brexit has somewhat been masked by current issues, but the real effect for many has been detrimental. Supply chain issues, increased costs, loss of staff, the list goes on.

Inflation is soaring. Interest rates are increasing. This, together with the rising cost of energy prices appears to be the final nail in the coffin for many, making it unaffordable to continue many business models.

By matter of interest, between August 2021 and August 2022, gas prices increased by 96 per cent, with electricity prices increasing by 54 per cent. We have already seen some businesses report eleven-fold increases in electricity prices. This is simply not sustainable!

So, what should business owners do?

I’ve got to admit, with the Government’s recent series of U-turns on decisions and chaotic developments in Westminster, planning ahead is becoming increasingly difficult.

But business owners do need to know where they currently stand. At very least, they need to know the direction of where their business is heading. To do this, it is essential that you carry out a cash flow forecast. If you are not comfortable with doing this, it is a good idea to use your accountant.

Cash flow forecasts are bread and butter for an accountant, and this should give you comfort that your business is heading in the right direction. If a going concern is doubtful, then speaking to a qualified professional, such as an Insolvency Practitioner, is a must.

Where businesses are struggling financially, taking early advice is not only key to maximising the options available, but will also mitigate the personal liability risk back to directors and help with discharging your duties as a director.

If you believe you could benefit from speaking to us, please do not hesitate to contact one of the Business Recovery and Insolvency Team here at Westcotts on 01392 288555.