FT Guide to Business Start Up 2012, 7th Edition

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

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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?

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the warning signs of failure (p. 365).

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the nal process if you operate as a limited company (p. 366), sole

trader (p. 368) or partnership (p. 368).

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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:

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you only pay a supplier when a writ is issued, and your suppliers are

refusing to sell you any more goods.

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you are near or above your overdraft limit at the bank.

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you are unable to raise any more money.

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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