“What are the most common business challenges that you come into contact with on a regular basis and what are the solutions?”
The vast majority of calls that we get involve errors made in the past and they often regret that action was not taken at the time as it would have saved a lot of pain, both financially and emotionally. With this in mind we have created this page to give an insight into the key reasons and common challenges where businesses have failed in the past and how to avoid the same traps in future.
The below list of challenges is placed in a vague priority order to give some idea to the reader as to the importance.
Common Business Challenges; Reasons for Failure and Solutions:
Issue 1 – HMRC debts and failed time to pay arrangements – the usual reason is a misunderstanding of what the time to pay arrangement involves.
Solution – Do not be pressured into any creditor payment arrangement that could be unrealistic, especially with HMRC as this may affect other potential ‘rescue options’. If you do have a time to pay arrangement it is critical to understand you must keep all other tax payments up to date. Any due payment failure will almost certainly result in a time to pay default.
Issue 2 – Winding up petitions must be taken seriously and must not be ignored. Amazingly, a lot of directors wait until the last minute before taking action. Worse, they pay the petition before the hearing date.
Solution – You must act immediately upon any threat of winding up if you wish to rescue the business. Once the petition is advertised it is tremendously difficult to save the business as the bank account will invariably be closed and other creditors may become aware. Suppliers and debtors you deal with may also become aware via their credit departments and either withhold stock and or owed funds. Do not pay the winding up petition before the Hearing date as other creditors can use the same petition – the key is to stop the advertisement, hence the need to act quickly.
Issue 3 – Banks/Factoring/Lenders calling in the receivers leaves a big mess usually as they are called in to secure the lenders interests not the company’s. A key problem very often is collecting money due in from the debtor book – this is usually managed by the ‘lenders’ telephone team and often badly handled. They (The lender’s team) do not have the same incentive as the director or the relationship with the debtor. The lenders risk is also usually underpinned by a personal guarantee given by the director.
Solution – check the finances of the company regularly and especially any terms and conditions of any lenders commercial agreement with you. Typically, you should check for risk areas and the special conditions section. The bank will usually use this area to trip up the director and or company if they so wish and put in place a receiver of their choice.
If you want factoring avoid using the same finance house as your company bank – keep them separate.
If your company is at risk seek professional insolvency help as early as possible as this may just save your business if not your company.
Issue 4 – Poor cash-flow management (robbing Peter to pay Paul) causes a tremendous amount of problems and sleepless nights. A key reason is the lack of a plan in the first place to identify what you should be doing. There is more to being in business than simply being good or even exceptional at something. Debtors not paying their invoices on time, or simply refusing to pay is a major problem in the UK so invoicing must be managed effectively.
Solution – Get a plan in place and review it monthly and assess the plan quarterly at least. The plan should an evolving document not something stuck in a draw to be reviewed at the end of the year in hope. If you do not like bookkeeping, or invoice management get someone in that is good at it if you have to outsource then outsource. You must not scrimp on this area. Do not place all your eggs in one basket when it comes to sourcing your company revenue sources and agree tight, realistic payment terms and stick to them.
Issue 5 – Personal guarantees are way ahead of all other areas when it comes to inflicting pain and sleepless nights on directors. One of the key reasons is the pressure placed on the family unit – everyone suffers. The vast majority of directors when contacting us are going through a divorce; separating or at the very least arguing. All of this has a devastating impact on the children too so we are very aware of this fact and help where we can to alleviate this specific stress.
The key cause of the arguments is the threat of losing the family home.
Solution – Do everything you can to avoid signing personal guarantees; if you must sign a personal guarantee get a limit placed on the amount that can be recovered; if you are asked for security offer the company assets fixed and floating via a debenture; if you sign the personal guarantee get a time limit on it to be reviewed every quarter; do you need all the overdraft at once? Can you reduce it over the coming twelve/twenty four months? My general advice is if you have any choice at all never sign for a charge on the family home it is as simple as that. If you do be aware the pressure will increase tenfold at home. I am not saying it is never right but I would say you should do everything in your power to avoid it.
Too many directors cajole their spouses into signing away the family heritage when often there is no need in the first place.
Issue 6 – Overdrawn directors’ loan accounts cause issues when you need to close the company for any reason or come to a formal proposal such as a company voluntary arrangement with creditors. In effect the director becomes a debtor to the company so when the company closes or come to an arrangement with its creditors the money owed will usually need to be repaid. The problem usually arises from the director taking money from the company without paying tax when they should not have by dividends typically.
Solution – If you are advised to take a minimal salary and top up the rest with dividends and ‘settle up at the end of the year’ change your advisor. Most directors see this as the right to take what money they want when they want it – this is not the case and can have serious consequences for the director.
The fewer the directors the greater the risk of this situation arising.
A dividend is a distribution of profit – treat it as such and assess and pay dividends quarterly at best. Be aware taking dividends monthly can also be argued by HMRC to be a salary and you are simply taking dividends to avoid paying tax and NI. It may be painful but think about increasing your salary and reducing dividends – get the right balance.
The usual cause of the problem is a large corporation tax bill at the end of the year so make sure you put money to one side into a tax account. This is not your money.
If something goes wrong you as director are responsible not your advisor.
Issue 7 – Sudden illness/injury/death can come at any time and have an immediate overwhelming impact on the family and business. The strain of running your own business can have tremendous strains on the mind, spirit and body. Typically, it is the long hours, bad diet and inactivity that impact most on the body. The constant hassle of haggling; juggling creditors and debtors and managing staff can drain the mind.
Solution – Make sure you have appropriate insurances in place and not just for death but disability too such as stroke, sickness and accident. As far as your health is concerned you are your most valuable asset so you must take care of your health mentally and physically. Put simple practices in place; stand up when answering the phone; quit smoking; cut down on alcohol; cut out fast foods; give yourself an hour at the end of the day to wind down. Start a sport, something you enjoy and practice mediation if not anything else this will improve your sleep patter and help de-stress.
If in doubt speak to a reputable independent financial advisor about the matter or contact your trade association or if you are a member ask the FSB, FPB or IOD for advice.
We are happy to provide you with your options and specialist debt advice on your situation, free of charge. To speak with a business debt advisor in confidence call us on: 08000 746 757.