...avoid a debt crisis in your pub
In the current tough trading climate it can be difficult to keep up with repayments. Twinpier's Chris Wright explains what to do if the arrears start mounting up
Credit and its availability is often crucial to the success of a business — all successful businesses use credit to buy assets and expand. When used properly, credit can be a great tool to grow a profitable pub business — whether it's building extensions, bringing letting rooms into use, paying for training courses or even helping to pay for extra staff during busy periods.
However, almost all assets cost money to manage, and a business should always factor in the cost of asset management before borrowing. Should you borrow too little, you will find yourself falling back on credit to cover these costs.
Unfortunately, in the majority of cases, credit is being used not to buy assets, but to pay for everyday bills and goods. While this kind of approach can see you through a sticky patch, it often comes at a very high cost. Typically, credit cards or overdrafts "maxed out" will leave people struggling to pay the minimums. Very often these debts are consolidated by a lender into a loan. Even if the cards or overdraft get cleared, unless you have the discipline to get rid of them, they get used again very quickly.
Once debt reaches a significant level, repayments to creditors become too big to be serviced — effectively you're paying interest on top of interest, along with any late-payment penalties. When overdraft limits are exceeded, direct debits bounce and everything starts snowballing, often coming to a stop only with insolvency action. But there are some effective tips to stop things getting worse:
Open a separate bank account
It is vital to have one that is not linked to any debt or borrowing.
Don't bury your head
The situation won't get better on its own, so read and keep all letters.
Plan carefully before being tempted to borrow
Often it can be a case of jumping out of the frying pan and into the fire, so you will need to work out a plan to know whether it's viable. Borrowing is only advisable in a very few cases.
Check assets such as insurance policies
You may be able to claim. It's also worth checking whether you can apply to any benevolent or trust funds for financial help, such as the Licensed Trade Charity: www.licensedtradecharity.org.uk
Check your entitlement
Maximise your income by finding out about benefits and tax credits online at www.entitledto.co.uk
Make a budget and stick to it
Use this as an effective brake to avoid overspending.
Prioritise creditors
This is not always obvious as the really important ones don't always shout that much — it's usually the non-priority ones who are most vocal.
Don't deal with debt on the phone
Get everything in writing, always contact creditors in writing, and keep copies of any letters you send. Phone conversations are often denied or forgotten.
Get saving
The key to getting out of debt now and avoiding future debt is saving. Almost everyone we have advised who is in debt has the same underlying problem — they have no savings.
It really doesn't matter what you earn — we have advised clients with an income of £50 per week right through to £100,000 per annum.
If you can't save any of your earnings, you are leaving things in the hands of fate — and, undoubtedly, something somewhere will go wrong or break unexpectedly in the near future. If you don't have your own money to fall back on, you will borrow someone else's — bear in mind there is nothing cheaper than borrowing from yourself.
n Twinpier
is a company specialising in helping people in the licensed trade. For confidential advice about a debt or credit problem, contact Chris Wright on admin@twinpier.co.uk or 01273 486650.
