As 2022 enters its last months, it is impossible to overlook the cost-of-living catastrophe. We are continuously reminded of it by looking at the news, our energy bills, and our shopping lists, if we are unfortunate enough to be impacted by price increases. As prices and inflation climb, smashing records and creating people from all walks of life are hurting.
So, what effect is it having on businesses? Energy rates, increasing food bills, higher rent rates all have an impact on the general economy. Without any help from the government, what assistance is out there and what can businesses do to combat these issues?
How are businesses being affected?
It’s easy to think that businesses are escaping the cost-of-living crisis. When you see food prices, clothing prices and the rest go up, whilst a director sits on a heft income, you can easily think they’re just hiking up their prices. In reality, almost all businesses are facing tough times.
Some industries have been more severely hit than others. Higher operating costs due to rising utility costs, drives up the rate for numerous types of businesses, in different sectors. These additional expenses can trace back to suppliers too, who have had to increase their own costs. Businesses without large financial backing, are usually forced into passing these extra costs onto their customers. As people look to save money themselves, businesses then feel the brunt of having to up their costs, which in result can see more businesses go bankrupt.
What happens to businesses going into debt?
During the Covid pandemic, businesses had some form of protection against creditor action, as the global economy remained in a level of limbo.
So, what kind of action could businesses face if they’re struggling with debts?
- Letters and phone calls
- County Court Judgements and statutory demands
- Winding-up petitions and bankruptcy
What help is out there for businesses?
The best course of action for directors and firms facing rising costs and a probable decline in consumers will primarily depend on the state of the company, the amount of debts, and what kind of assets it has. Though it’s crucial to evaluate the possibilities for the future, it’s also necessary to take the director(s)’ preferred outcome into account.
- Formal Repayment Plans
Applying for a Company Voluntary Arrangement (CVA) is one approach to pay back the company’s obligations in manageable monthly instalments. A CVA is a legal repayment plan that shields the firm from creditors’ demands and enables it to keep operating while making payments on its debts. The agreement is made by a licensed insolvency practitioner and typically lasts five years.
If more action is needed than just paying off the company’s debts, administration can be an option. Administration envisions a certified insolvency practitioner managing the business and working to get it back on track to profitability.
- Close the company and walk away
Sometimes it’s better to simply walk away. It may be best to dissolve the company and draw a line under the company’s debts. A Creditors Voluntary Liquidation (CVL) gives directors the control and opportunity to enter into liquidation and can be better than receiving a winding-up petition which would mean the business enters into compulsory liquidation.
Individuals and businesses are feeling the squeeze as consumers tighten their belts and assess their outgoings, even if the cost-of-living problem is having a noticeable impact on the population. Thankfully, assistance is still available for those who are having trouble paying back their debts, even though there isn’t government support on the same level as that provided during the coronavirus epidemic or restrictions on creditors’ ability to take collection action.
Whatever the case, it’s critical to take action as soon as you realise that you or your business’ finances are in danger of going bankrupt. Getting assistance sooner rather than later can help you or your company achieve a more desirable result.