Minimise debts by ceasing to trade

If a client runs a business but is seriously in debt, they should consider whether to continue trading. The client needs to consider whether the business can improve its situation and trade out of its financial difficulties or, if the situation is unlikely to change, will trading on just increase indebtedness? If the business is a limited company, continuing to trade when there is no realistic chance that the insolvent company can trade out of its difficulties could be deemed an offence at a later stage (and the director(s) could be held liable).

Deciding whether to trade on is a complex area and specialist help should always be sought from a specialist business adviser, such as Business Debtline or the business’s bookkeeper or accountant. Again, a friendly insolvency practitioner may be able to help here.

To help with the process, you can assist the client in drawing up a business financial statement. The business financial statement is similar to the personal financial statement drawn up for the client, except that it deals with the income and outgoings of the business.

If the business financial statement shows that nothing is available for the client to take as an income from the business, and that is unlikely to change, this usually indicates that trading needs to stop. However, the client must obtain specialist advice before taking such a major step. This is because several issues, such as liability for tax or payments due under a business lease, could make the difference between viability and insolvency.