Last year followed a pattern of recent times, in that it wasn’t exactly easy to run a small business. The economic prognosis may be slightly improved for 2014, but there are still many challenges. We speak to Mike Smith of debt specialists Jameson Smith & Co to find out more.
Before we get down to the nitty gritty, what’s your thoughts on the convenience sector at the moment?
The past year was still very difficult for retailers. However, Scotland’s convenience stores appear to have done better than big superstores with beer, party food and flowers selling strongly. And even better news is that the economic prospects for 2014 are looking better.
So what can retailers do to really ensure they’re protected?
Well, you can protect yourself personally by starting a limited company. But, if you have historic personal debt from a partnership/sole trader you cannot transfer this into your limited company. Equally you can’t simply transfer stock from your failing sole trader business into the limited company. This must be handled carefully as there are quite stringent legalities that must be complied with.
What about retailers asked to make personal guarantees?
You don’t have to but banks may insist on this if you want to increase your overdraft or want a loan. As a sole trader you are liable anyway so they may try and pressure you for a charge on the family home.
Some retailers may have fallen into debt but sales are picking up – what can they do to protect themselves there?
In situations like this, companies like ours can arrange a Debt Arrangement Scheme, known in Scotland as a Protected Trust Deed and this often proves an effective solution since debts can be spread, based on what you can afford, typically over 36.5 months.
And what if the problems relate mainly to cashflow?
Poor cash-flow can be a serious indicator that something is fundamentally wrong, especially in a cash-rich business like convenience retail. Retailers should always seek professional debt advice before going to your family for financial support.
In some of the worst case scenarios, what if retailers are threatened by bailiffs?
Bailiffs cannot force entry, but when you are a store it is hard to not let them enter the property. They want to retrieve cash, so it’s unlikely they will take away fixtures & fittings or perishables, even if they threaten to do this. If the business is a limited company, then personal assets cannot be seized to pay company debts so make it clear that you know your rights. You are likely to need evidence that the assets are personally owned and keep these documents handy. Make sure you know your position as a trader in case the bailiffs do come knocking.
But is it not correct that if the retailer is in rent arrears the landlord can take stock?
Yes. Landlords have special rights and can seize assets and or stock. They can call on bailiffs to ‘seize’ assets as a warning; but again, they won’t want to take stock and will look for other options.
Utility costs can be a major outlay for retailers, what’s your advice there?
You need to shop around, but do this when you are not in arrears, as once you are in arrears you will have a problem transferring to a new provider. Also check your personal or your company credit rating – the lower your credit rating the higher the amount you will pay. Try to improve the credit rating by actively managing it and letting the utility provider know if there is an improvement.
What is the most common problem in your experience?
Store buyers often take on a failing business believing they can make it a success without the due diligence or understanding of why it actually failed. Make sure you know the locality, culture and customer profile by doing a local survey within one mile of the shop. The bigger question often overlooked is – “Is this business actually viable and worth taking the risk if nothing will change?”.
