Business debt problems

forest14

I run a small business, for 6 years now, debt has spiralled out of control, now over £70'000. (I only have a £60'000 turnover) On various loans, credit cards and overdrafts, now my credit rating is poor due to missing payment on loans and cards. My bank wont pool my loans or debts. I have tried increasing sales the best I can, mainly over the internet, it has helped, but not enough. I do not wish to go bancrupt or out of business, but am heading that way if I dont do something about it.
Since starting in business I have been through three banks, loans with each, and now am on the third bank, with 2 loans! The first two banks I have de-faulted on and am currently in collections making minimum repayments, as I am with 2 credit cards. I want to turn this business around, how do I handle this debt and move forward?
I was told that Martin said that if you contacted creditors, and offered a minimul cash sum to settle, or you were going to apply for bancrupcy, that they may take it and wipe the debt, is this truth or fiction?
Any suggestions or advice would be greatly appreciated.

Bean_Counter

Hi Forest,

Have the loans been incurred to funds losses in the business or have they been incurred for some other means? It also sounds as if they have been gradually incurred over a period of time rather than, for example, to fund business start up costs.

I think you need to make sure that the business is fundamentally profitable for the future. Do your accounts show that you make a profit?

In addition you also need to do a cashflow forecast to make sure that the business is cash positive. There are many templates on the web to create a business plan, including this one (and the related links on the page) from the governments business link website.

You also want to make sure that you are collecting money from your debtors as quickly as you can. Do you have any bad debt problems?

forest14

Hi Bean Counter

Thank you for your reply. I dont know how I found it though, its so confusing this site!!

Yes the funds have been incurred over the last 5 years, some was initially borrowed for the business set up, but most was borrowed to keep the business running, mainly paying bills and suppliers. It has accumulated quite high now and Im not sure what the solution is.

Thank you for the business link cashflow link, I will have a go asap, see what the outcome is.

As for the numbers:
Year 1 - £1'000 net profit (£19'000 gross profit)
Year 2 - £14'000 net profit (£41'000 gross profit)
Year 3 - £10'000 net loss (£29'000 gross profit)
I expanded in year 3 to 2nd premises and re-fitted both premesis

Year 4 & 5 have not been done yet, as I can't afford the accountant! But I am expecting a near break even point, takings have gone down in the last 2 years, Im in retail and manufacturing and retail it taking a bit of a bashing at the moment so its difficult to increase sales.

As for money owed, we collect quick so never really have much more than £1000 owing per week, however, we do hold a lot of stock in order to offer our services, as well as our retail stock.

Bean_Counter

Hi Forest,

On the positive side, the business appears to be profitable. In year 3 you managed £29,000 gross profit on a turnover of £60,000 - many businesses would kill for such a mark up.

However as you eluded to in your first post, the turnover just insn't high enough.

One thing that I am struggling to get my head round is to equate the £70,000 debt with the figures above. Do the net profit figures that you quote above include any salary / drawings for you, or are they over and above those figures?

In addition, just how much stock are you holding? What is the figure for stock in your balance sheet for the accounts that you have?

You also state that you have not had an accountant for the last couple of years. Does this mean that you have not filed any accounts / self-assessment returns with the taxman?

forest14

Well thats what I thought, Im on a 60% gross markup! But obviously not making enough sales....My max turnover was year 2 - £64'800, but has slowly done down since.

I havent really taken a set wage as such, as I spend the book keeper puts it down as drawings, so I think that my wage is included in the profit margin.

Stock holdings:
year 1 - £12'000
year 2 - £21'500
year 3 - £14'500

I dont have 4 & 5 but around £20'000 each year.

As for the £70'000 I have invesed £22'500 of it into an e-commerce company that was supposed to see a good return, for which I was to have a wage to cover the loan costs, this didn't happen, long story, but I now have split the company and own half of it in its own right, it should see a return eventually, but not as yet, I have spread this loan out now to bring the monthly payments down, but I have been paying it back for a year now with no extra income from it.

The rest was gradual:
£7'000 credit cards - lloyds
£2'000 overderaft - lloyds
£12'000 loan - natwest
£5'000 overdraft - natwest
£10'000 loan - hsbc
£5'000 overdraft - hsbc
£13'000 loan - family, (inc set up costs and gradual loans)
£22'500 loan - hsbc - for investment into new ecommerce business

Total £76'500 - thats more than I thought, ouch. The more I type the worse I feel.

I know Im giving a lot of information out, but if you can help in anyway its much appreciated.

As for the end of year return, '06 has to be in now really, by Jan 31st, so have spoken to the accountants today, and they said they will do it and I can have a payment plan. More monthly bills though!

Bean_Counter

Hi Forest,

Thanks for extra info.

I'm still not sure whether your drawings are included in the costs to get to your net profit. A quick look at the accounts you do have should show whether there is a line in the expenditure for drawings or wages or something like that.

My gut feeling is they are not included and if you add the drawings to the costs above you get a better picture of where the cash has gone. It could be that as well as funding your stock and the ecommerce company, you are actually losing money year on year.

I think if I were you, now that you are back on speaking terms with your accountant, you should go in and sit with them to go through the figures and see if the business is indeed profitable and worth carrying on with. Sorry if that sounds negative and you did say that you wanted to turn the business around. Your accountants will be in possession of the full facts and be able to give a far more accurate picture than anyone on this forum. The costs incurred may well pale against further losses that you might make. They would also be able to assist in doing a cashflow forecast and other projections.

forest14

Thanks for your help, I think I will make an appointment and get to the bottom of this, I can't carry on building debt. I never seem to have any money, I would earn more getting a job at this rate!

I can't see any extra listing in my accounts for drawings so I will have to clarify that with them.

If only I could increase sales I think I could make a success out if it.

Thank you for your help and advise

Bean_Counter

Hi Forest,

One of the questions that you want to be asking the accountant is for he / she to explain where the £76,500 of debt has gone.

You know that £22,500 is the ecommerce investment and that approx. £15,000 might be stock, but that would still leave £39,000. Some of this may be investment in your premises, but you really need to know if the rest is mainly actually trading losses when your drawings are taken into account.

Feel free to post again once you have spoken to them. Good luck.

rockmanstart

Hi all,

Sorry if I am cutting in on someone
else's thread, but I am new to this!

I am looking for advice... I just liquidated a company, but the main Creditor (who is owed around £12K) has just served me Litigation docs to chase the debt personally. They are threatening bankruptcy.

The premise for their case is that the business was NOT Ltd when we signed the original contract with them. However, they are fully aware, and always have been, that we are Ltd, and out of business!

Any thoughts?

Many thanks in advance!

antrobus

rockmanstart wrote: »

Any thoughts?

Go see a solicitor.