A twelve-part blog series outlining how to save, turnaround, and grow, your struggling or failing professional client service consultancy, architects practice, design studio, marketing communications (marcomms), PR, digital or creative agency business.
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Total Business Turnaround
Part 08 | Business Creditors
Your creditors, on the whole, are really the suppliers who have helped you grow your business. Without them, you would have nothing to make or sell. No product, no income—nothing. They helped you when you first got started and have been there for you throughout. Therefore, you should do everything you can to return the favour and ensure that they are well looked after and treated at all times with the respect and professionalism they deserve.
You must maintain your integrity, honesty, openness, and you must recognise your obligations and make good on your debts wherever possible. In extreme circumstances, especially when the future of your business is in the balance, you should look at everyone associated with your business as suppliers and creditors, and for your business to survive; you have to look after them all. You can’t focus on one to the detriment to the other; otherwise your business will quickly start to fall apart.
The main creditor you will have, and in the UK probably the main reason why you may have had to reach the decision to liquidate your company, is the government; especially if they are pressuring you to pay overdue monies owed for VAT and the Employee Tax. Because of the length of time that it takes for communication to pass down the ranks within government agencies, they can always come in and demand monies owed. However, once you have gone into liquidation or administration, it is the responsibility of the insolvency practitioner to handle any enquiries from the tax collectors.
You as Creditor
You will probably have to forgo any money you’ve invested in the form of personal loans or through credit cards. If you must get paid back, the best you will be able to do is to pay yourself only the absolute minimum to help ensure the continuity of the firm. You may receive a dividend from the insolvency practitioner, but that is dependent on the amount of funds you have invested as directors loans.
That dividend, however, will not be enough to pay the regular day-to-day bills of your credit cards and personal loans. Moreover, if you do receive anything, you won’t receive it for about 24 months, or until you’re new company has fully paid for the old business. You may have to consider personal debt management to make it through.
There are many creditors who will, more or less, work with you. There are others, unfortunately, who will more likely cause trouble. This will happen through unprofessional behaviour, rumours, and bad mouthing. The best way to deal with these issues, not to mention the creditors behind them, is to communicate as openly and fully as you can.
Responsibility and Understanding
It’s good practice to always keep the other person’s situation in mind and to be as understanding as you can. Remember that to a greater or lesser degree, everything that is happening to you and your business has an impact on everyone connected. You must remain professional and helpful. You are part of the reason you and the creditor are in this situation, but so is he.
Be as honest and helpful as you can, since by doing your best to resolve the situation, they will respect that once they’ve had a chance to vent and feel heard by you.
Repayment Schedules – Preferred Creditors
You’re not meant to give any creditor preferential status, but there are business-critical suppliers and creditors that must be paid for you to continue working. Prioritise as best you can, but in the short-term you should only pay business-critical creditors and suppliers to ensure continuity and keep them on a realistic payment schedule so that your month-to-month cash flow and payments are kept to an absolute minimum.
Repayment Schedules – Other Considerations
On the whole, it’s best to keep any agreement to repay ongoing business-critical suppliers on a gentlemen’s basis. In other words, try to leave it at a handshake.
Any commitment above that at this stage will simply put you under stress while you are trying to get the business going again.
As long as your intention is to make good the relationship, and you keep in regular and professional contact, then you’re doing your best and doing the right thing. So many others wouldn’t go this far and your creditors will, for the most part, respect this even if they are upset that they aren’t getting paid straight away.
Software Licenses and Copyright Issues
When it comes to software license agreements that are not carrying over, things can become very complex. Check the terms and conditions as you may have to re-buy certain items you thought you’d bought and had value in the purchase consideration for the old company.
Some software license agreements restrict the license transfer to restructured companies. Often, these companies will invoke their terms and conditions and insist that you purchase new licenses.
Photographers and other suppliers who hold the copyright of their work will keep a tight hold on the copyright until they’ve been paid and that can lead to client issues. They may even contact your clients directly and demand payment, as they may ultimately be the end user of the copyrighted material. Deal with these suppliers in as timely a way as possible.