Neil Bromage has run his own small business and is a freelance business writer working on a range of newspapers including The Times, Sunday Times, Telegraph and Financial Mail on Sunday. This book is based on a wide range of columns and Q&As written and answered by Neil for Business Link over a number of years. He is based near Preston, Lancs.
There are few businesses that have not at some time faced major challenges to their continued life. And in spite of the best laid plans things sometimes go wrong. Since 1998 bankruptcy among small business has risen by 20% according to the Bankruptcy Advisory Service.
The high profile demise of various dotcoms, having spent millions on their launches, is a classic example of how even a well considered and financed businesses can very quickly go down the tubes. But what can the small business do when it seems to be facing similar difficulties?
In the past, when small businesses hit trouble, the first reaction was to close them down. But this sometimes failed to realise the true value for creditors, and jobs were lost unnecessarily. However, in today’s business world the rescue culture prevails.
There are many techniques of rescue, which generally depend on how the business is set up – limited company, sole trader, partnership etc. Some methods only work where underlying problems are identified early; others have to be adopted when only drastic measures will suffice.
Where a limited company finds itself in difficulties an administrator can be appointed to buy breathing space. During administration the directors remain in office, usually continuing to run the day-to-day affairs, but receive protection against personal liability from wrongful trading. This is flexible and adaptable and allows the chance to restructure the business.
For sole traders, partnerships and limited companies one of the most commonly used rescue methods is a Voluntary Arrangement. This is more of a compromise between a business and its creditors than an insolvency procedure and requires only 75% of creditors to support it.