Times are undoubtedly tough – there is a cost-of-living crisis, inflation is high (although falling) and in an attempt to curb it, the Bank of England and the Government are seemingly crippling the economy. Add to this the fact there appears to be a lack of people willing to work.
Many businesses have been propped up by relatively easily obtainable debt, but this debt has become increasingly more expensive.
So, the question many business owners are asking themselves now, “is my business dead in the water?”
How can you tell?
It’s relatively easy to tell if your business is viable by simply looking at your balance sheet. This is a good starting point as it will show you if your business can be sustained in the long run.
Look at your liabilities (the money that you owe) …are they greater than your assets?
If your liabilities do outweigh your assets, then your business is technically insolvent; even if you sold your assets and collected all your debt you couldn’t pay back what you owe.
To look at the short-term situation, you need to take your fixed assets out of the equation. Now check to see if your current liabilities (the money you owe in less than a year) are greater than your current assets (the money owed + stock + cash).
Chances are, if your current liabilities are greater, then your business isn’t making a profit. If the business is making a profit, there is a chance that you may be able to trade out of it. But if a downturn in trade were to occur, then your business will probably struggle to survive.
What action can you take?
If you are at this stage, you only really have three options:
- Put some cash into the business to prop it up.
- Trade out of your position while cutting costs.
- Shut the business down.
Shutting the business down
This is a monumental decision that is not easy to make but for some, continuing to trade will just add insult to injury and make the position worse.
Fortunately, if you are trading as a Limited Company your liability as an individual is limited to the value in the company, as long as there is no fraud or criminality.
Be aware that some debt carries personal guarantees, and the guarantor may seek to recover this from you.
If you are a client and think you may be in this position, then seek professional help sooner rather than later. Give your Client Manager a call to discuss your options.
