Business Closed: Worries For A Director When Facing Closure

Business Closed

We are coming out of recession and many businesses may be tempted to think that only good times are ahead. Actually, this is a very dangerous time for business owners as you may be tempted to over trade – basically take on more work than you can fund from cash flow. In this situation, slow or late payers can seriously impact your businesses ability to pay its own bills.

There are of course many causes of business failure external to your business. It is often an unpaid debt, loss of key supplier, or a disaster such as the recent storms in England. So real business issues often force closure. My first piece of advice is to face any situation head on and take time to review all options whether unpalatable or not, and seek professional advice from an Insolvency Practitioner (IP).

Often as not an IP will offer free advice in the first instance, and they will clarify your position and decisions you must make, and often offer an understanding that current pressure may not allow you to see. As a director of the business you have certain duties of care. Here are a few things to consider when making a decision as too your next steps.

  • Your primary fiduciary duty is to creditors and shareholders
  • Taking appropriate advice gives some protection against wrongful trading risk
  • The business needs to have “reasonable prospects” if deciding to trade on
  • Document decisions and the reasons why they are made.
  • Support decisions by forecasts.
  • Don’t make creditors promises of payment you cannot meet
  • Don’t give personal guarantees to support payment promises.

So how do you avoid all of this in the first place? A few simple steps can protect you. The Internet is a wonderful tool to any business. If you want to learn all about a prospective customer, Google their name and look for comments about the business. There are any number of free credit tools online, so use these before releasing goods or services. Maybe even consider credit insurance if you trade over £10,000 with any one customer.

I advise business owners to have a written credit policy and ensure all staff are aware of it. Issue your terms and conditions with every invoice, make sure these are clearly written and simple to understand, and finally have collection strategy in place. If you don’t get paid, do not be tempted to continue supplying a business that owes you more than two invoices.

Another consideration that many owners approach late is finding funding for the business. If successful, a business should plan its finance requirements well in advance. Consider what type of finance is best suited to use and take time to research the market for the best deals.

If you are a young business supplying goods and services to other businesses, consider Invoice Discounting Facility. This can provide funds when growing and also act as your collections team, removing a burden and allowing you to concentrate on growth.

Mark Halstead

Mark joined the Begbies Traynor Group at the creation of Red Flag Alert and is now in his 10th year with the business. Mark is a sales professional and has enjoyed a varied career in sales and marketing. He is a fellow of the Institute of Sales and Marketing, having previously worked in financial services across a range of divisions including both personal and corporate finance and treasury services for a major bank.