What happens if a business is in debt really depends on how the directors of the company react. By acting at the first signs of trouble, there will be more potential to resolve the debts and return the company to a healthy position. Burying your head in the sand and ignoring the debts will only cause issues to escalate, with the potential to be pursued by creditors or the courts. In order to prevent debt causing your business to fail, it’s essential to be proactive and face issues head on. This includes taking the following steps:
Communicate With Your Creditors
It’s essential to keep the lines of communication open with the people you owe money to. Explain your situation and your intention to repay the debts as soon as you’re able to. Many creditors may be willing to re-negotiate payment terms, giving you some breathing space. Keeping them in the loop will help to alleviate pressure and make them less likely to take formal action to recover the debts.
Improve Cash Flow As Much As You Can
There are a number of measures you can take to try and improve your cash flow in times of financial difficulty. This could include cutting unnecessary costs, negotiating credit from suppliers or carrying less stock. Maintaining good cash flow will have a positive influence on what happens if a business is in debt. Keeping a close eye on your cash flow by maintaining accurate bookkeeping is essential to assess strengths and weaknesses.
Seek Professional Guidance
We mentioned a moment ago that what happens if a business is in debt largely depends on how the company reacts. That’s why, at the first signs of trouble it’s essential for the business to contact a business rescue expert or insolvency practitioner. Our experienced team at Ballard Business Recovery can advise you on the options that may be available for managing your debts in order to recover your business. This may include the likes of a Company Voluntary Arrangement (CVA), administration or restructuring.
What Happens If You Don’t Take Action?
If you don’t face issues head on then the process for what happens if a business is in debt could be very different. If debts are left ignored then creditors could take action against the company. In the worst case scenario this could result in a Winding Up Petition being issued against the business. The petition is heard in court, and if a Winding Up Order is issued then compulsory liquidation will be enforced.
You may have the concern “can business debt affect personal credit?”. If you are the director of a limited company, you can only be made personally liable for debts if you are found guilty of wrongful conduct or have personal guarantees attached to any of the debts.
What To Do Next
If your company is struggling to pay your debts then it’s crucial to seek professional advice as soon as possible. Our experienced team of business rescue specialists and insolvency practitioners can talk you through the options that may be available for your company. Please don’t hesitate to get in touch with us for an initial chat.
