As the latest insolvency figures reveal a harsh picture of trading conditions for the UK's small businesses and self-employed, Atlantic Financial Management is cautioning business owners against using personal credit to help keep their business afloat. Atlantic has seen a stark rise in the number of company directors and owners in serious financial problems, owing in part to the fact they have used their personal credit cards to support their business.
In the first quarter of 2011, 84.2% of bankruptcies were made on the petition of the debtor and while personal insolvencies are down, self-employed bankruptcies made up 18.9% of all bankruptcies in quarter 4 2010 - a higher proportion than in recent quarters. Businesses in the hospitality arena are experiencing the biggest difficulties with personal bankruptcies from business debts up by 60%, followed closely by wholesalers, retailers and property developers.
" ... The increase in failure rates of both small and medium sized companies ..."
Kevin Still, Atlantic Director said: "Whilst it is encouraging that the level of personal bankruptcies and IVAs are down both year-on-year and quarter-on-quarter, I fear this could be the calm before the storm. The dividends out of bankruptcy are minimal so creditors are continuing to show forbearance, borne out by the fact that the majority of personal bankruptcies are initiated by the debtor.
"The real concern is the increase in failure rates of both small and medium sized companies and the knock on effect this will have. Late invoice payment, lack of access to working capital and banks trading out of overdraft facilities have all contributed to the financial straits in which many small and medium businesses are now finding themselves. This can impact the owner's and directors' personal finances and cascade down to the employees, who may have already had pay frozen or hours reduced.
"... A devastating impact on their personal finances and access to credit ..."
"At Atlantic, we have seen a real rise in the number of business owners and company directors contacting our debt advisors with serious financial problems, often where their personal credit cards have been used to fund the business. This creates a debt spiral with one credit card being used to pay off another often with interest rate charges rising each month, completely swallowing up the original debt.
"It is not uncommon for business finances to be closely tied to personal finances, particularly in the early years but directors and owners need to recognise the ease with which debt can quickly escalate. This can have a devastating impact on their personal finances and access to credit both now and in the future. While getting back in the black has to be the key priority for their business, personal finances should be kept personal."
To find out more about Atlantic Financial Management contact us or call 0845 0 30 30 30