Help

space2000

Morning, I went into business a few years ago, my business partner, had another company that he put in to liquidation. His other company owed our company a large amount of money. He has since resigned from our company.
The company is £1500.00 into its OD, and currently owes out £11k. We were doing 40k a month in sales, but the bad debt has crippled us. The business is capable of getting up to 40k + a month again, with a gross profit of 40%.
I need to pump around 40k in to re-start it, but I am not getting any help from the banks etc.
I can not just walk away from it, as the potential to grow is there.
Any input would be much appreciated.

Tixy

When you say you are not getting any help from the banks what have you done so far?

E.g. have you prepared detailed robust financial projections showing how you expect the business to do over the next few years and showing the ability to service a £40k business loan?

Have you presented this to your current business bank and explained the difficulties caused by the bad debt but that you do have a profitable business? have your latest year end accounts been produced and have the bank seen them? have they bank seen your latest management accounts for the current year?
Have you approached any other banks?

Are you in a position to offer a (meaningful) personal guarantee to the bank? Do you have personal equity in your own property for example.

If the bank is not willing to offer a loan, are there other ways to raise money within the company e.g. depending on what your company does is there an option to raise finance against any assets in the business, would invoice discounting be an option perhaps?

Whilst I would prepare the projections assuming you won't get back any of the £11k bad debt, realistically do you think that you might get anything? does that company have assets? have you looked at a copy of the latest accounts for that company (you can order these from companies house).

space2000

There is no chance of getting any money back. I have shown my bank a business plan,and latest accounts. I have a house worth 225k, mortgage of 85k.

Tixy

Do your latest accounts show that it is a profitable business aside from the exceptional bad debt?

Does your business plan include detailed financial projections?

Did you prepare the business plan/projections alone or did you have any professional help (e.g. from your accountant)?

I would focus on trying to obtain the funds you want within the limited company.

However if you can't are you prepared to borrow the money personally and loan that to the company as a directors loan?
Would your existing earnings from the company and personal credit file likely support a mortgage application for further borrowing of £40k?

dancingfairy

Are you prepared to put the 40k on your own mortgage? Obviously this is a high risk strategy for you but then I guess if you get a bank to lend you 40k they may well ask you to put your house up as security anyway?
Have you got a financial adviser?
Have you got any business links/advisers near by that might be prepared to offer suggestions?
df

justjohn

What's the percentage of net profit?

I assume its not good if the debt is killing you.

space2000

I would put 40k on the mortgage, as house prices are on the up my way, so, there will be no issue's of negative equity.
So, I guess that is the way forward ?

justjohn

space2000 wrote: »

I would put 40k on the mortgage, as house prices are on the up my way, so, there will be no issue's of negative equity.
So, I guess that is the way forward ?

Can I just say my company owed nearly 15k 3 years ago. with a turnover of 30-40k per annum. However the debt was not crippling and was negligible as net profit was high. Today the company has no debt.

if 11k is crippling you then you may have other problems. Getting a mortgage on your personal asset may be making the situation worse.

Tixy

space2000 wrote: »

I would put 40k on the mortgage, as house prices are on the up my way, so, there will be no issue's of negative equity.
So, I guess that is the way forward ?

Well I would try further for a business loan first.

The reason being is that if you cannot get a business loan then I'd worry that your business and projections are not realistic if you cannot convince the bank to lend to you.

Whilst you believe the business is viable and worth the investment I would think it better if you can get someone impartial to agree with you and to be able to see the potential in the business.

The fact that the bad debt was £11k but you want to borrow £40k sounds like you have other issues with your business or working capital. It doesn't sound like you want to invest in assets as you are only hoping to grow you business back to what it was doing previously not expand it.
If any of them money is for new assets then I would look in to funding them through HP/asset finance in the business.

If you haven't already then I would get your accountant's (or a business mentor's) advice/opinion on the viability of your business.

space2000

Thanks for the replies, but bad debt was not 11k, it was a lot more.

Tixy

Ah

The company is £1500.00 into its OD, and currently owes out £11k

Is that figures about your Company not the other business? Is the £11k your existing debts to suppliers and HMRC?

Do any customers owe you money? or are all your sales cash/no credit? what other assets do you have (e.g. stock that can be converted in to cash to pay suppliers etc)

What else do you need funds for in the business?