Partner Article

Keep the paperwork in order to avoid a business crisis

Two businesses, both providing very similar services and both sharing the same managing director.

No problems there…until that managing director makes the potential mistake of not keeping the businesses completely separate.

Insolvency practitioner Stephen Beverley, of the Sheffield office of insolvency practitioners Graywoods Leonard Curtis, says that a failure to understand why two separate businesses should maintain strictly separate accounts is a common cause of financial problems for otherwise successful operations.

“Even something as simple as utility bills for your premises need to be registered in the right company for that business,” Stephen explained.

“It’s the only way to protect one business if the other begins to struggle to ensure there isn’t a domino effect on the successful business.”

Stephen added it was a particular problem for people who had started out as sole traders but then were advised to become a limited company - forgetting that they would need things like a new VAT number and new utilities accounts.

“Former sole traders who have switched to trade via a limited company too often tend to think it doesn’t matter and it is only further down the line, when they are personally liable for a debt, that they understand how important it is to keep things separate,” he said.

“Even if you are setting up a new business it is just as critical that company accounts, be that bank accounts or with suppliers, should not be simply registered in the name of the director, which can happen in error.

“If there are problems the service provider will simply pursue the name on the account and will not care about the consequences for either the individual or the other company.

“The issue is particularly important if you have an existing business but are then setting up a new one.

“For those people setting up multiple businesses, the particular area of concern is that borrowing from one of your businesses to shore up the other - it might seem like a quick fix and one that can easily be rectified when the crisis moment is passed but it can also be a contagion that spreads very quickly in all directions.”

The basic solution, Stephen added, was to ensure that even the slightest problem should be dealt with quickly and efficiently.

“Seek professional advice early, identify what the problem is and devise a way of navigating a way forward that does not put your other business interests at risk,” he said.

“If you have a business that is no longer performing as well as it once did, then explore the reasons why, identify the issues that are causing the problem and act accordingly.

“Get all your paperwork in order, pay attention to detail and make sure that things like lease agreements and utilities are in the correct entities name because too often that is where the problem arise.”

This was posted in Bdaily's Members' News section by John Highfield .