28
Not waving but drowning
If you put this book’s guidelines into operation at the right time, fewer of
you should need this chapter than the average small business. Nevertheless,
there are those who will. Some businesses will go to the wall.
Few people can appreciate before the event how traumatic the slide into
failure can be. Gradually hemmed in with fewer and fewer avenues of
escape, you have to come to terms with the crushing of your hopes and
expectations. For natural optimists, such as entrepreneurs, it is appallingly
difcult to do. At what point do you realize that your business is not going
to survive? When do you accept that to carry on is to put other businesses
in jeopardy and to impose the same pressures on them as on you? At what
point does it become illegal to carry on?
That point may be easy to recognize for an outsider, who is calm and
rational. But it is incredibly difcult to recognize when you have been
ghting for weeks, or even months, to avoid it. You may nd that you
slid past the point so gradually that you did not have time to notice.
Sometimes, matters are taken out of your hands by an outsider, such as a
creditor or a bank, beginning the steps to close your business.
The problem of acceptance is made worse by the usual existence of some-
what schizophrenic behaviour. To avoid rumours and doubts emerging
about the future of your business, you may well be putting on a brave face
to the outside world. And you are doing this while knowing within your-
self that it does not ring true. The title of this chapter is from a poem by
Stevie Smith. Two lines from this poem are: ‘I was much further out than
you thought / And not waving but drowning.’ This aptly summarizes the
dilemma for someone whose business is in nancial difculties.
28
n
Not waving but drowning 365
Further emotional difculties are caused by society’s harsh attitude towards
the failure. Even though thousands of businesses fail during a recession,
many of them through no fault of their own, there is often little sympathy
for those that do. However, since 1 April 2004, if you do go bankrupt, you
will normally be discharged after just one year (instead of three as previ-
ously). For more information, contact the Insolvency Service*.
This chapter tries to help you to recognize the point at which you have to
say: ‘Enough is enough.’
What is in this chapter?
n
the warning signs of failure (p. 365).
n
the nal process if you operate as a limited company (p. 366), sole
trader (p. 368) or partnership (p. 368).
n
what happens afterwards? (p. 369).
The warning signs of failure
Chapter 26, ‘Staying aoat’, describes how to control your cash to
avoid an ignominious end to your business. At some point, you may
unfortunately nd:
n
you only pay a supplier when a writ is issued, and your suppliers are
refusing to sell you any more goods.
n
you are near or above your overdraft limit at the bank.
n
you are unable to raise any more money.
n
your liabilities are greater than your assets.
Once your business has reached the point that liabilities (what you owe)
are more than assets (what you own), the business is insolvent. It may
become insolvent at an earlier stage, when current liabilities are greater
than current assets: in other words, when the amount you have in cash
and debtors is less than the amount you owe to creditors. This may occur
even though you have sufcient xed assets to cover what you owe. These
xed assets may take too long to sell, at other than a knockdown price, to
satisfy your creditors.
As well as insolvency occurring as a result of sales being too low or costs too
high, outside events can force it on you. For example, you may be owed a

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