Help for firms in throes of debt

Andrew Bibby reports on a new winding-down advice service in Birmingham for troubled small businesses

SELF-EMPLOYED people - particularly those who have escaped unemployment by creating their own work - can face especially severe difficulties in trying to extricate themselves from business failure.

'There's a lot of advice available in setting up a small business but a lack of agencies where people can go to get adequate advice on whether they should continue to trade,' says Marie Andrews, manager of Business Debtline, the first agency specifically set up to help small business people cope with their debt problems.

The counselling service, which offers both a telephone helpline and a drop-in centre, has been established by Birmingham Settlement, the pioneering money advice organisation that also runs National Debtline, which deals with consumer debt problems. The new service opened last week.

The recession has taken a terrible toll on small businesses, and money advice agencies have reported an increase in the number of business-related debt cases. As Ms Andrews points out, there can be particular problems in helping clients whose personal and business affairs are inextricably linked: 'Traditional money advice is well- established now: you produce a financial statement which is based on the business's income and arrange to distribute any excess among the various creditors. But this method is absolutely useless when it comes to business debt. The small trader himself usually doesn't know until he gets his accounts at the end of the year whether he's making a profit or not,' she says.

Court procedures, which can assist those with consumer debts, are less helpful for business debtors. 'I think the courts take a tougher view when it's a trade debt,' Ms Andrews says. Furthermore, both tax and VAT liabilities can be enforced without the courts even being involved.

'The small trader hasn't got that buffer between him and the creditor. The Inland Revenue collectors can come straight into his business and take away the tools of his trade, putting him out of business. Court bailiffs can't do this, and the Official Receiver would allow him to retain his tools if he went into bankruptcy. It means that it's actually very difficult to deal with tax and VAT officers,' Ms Andrews says.

Business Debtline will be hoping to persuade the tax and VAT authorities to take a more understanding approach to small business debt.

The service has funding for four workers for an initial two-year period, the support coming from Birmingham Training and Enterprise Council, the local city action team and National Westminster Bank, which has also arranged for its small-business advisers to be seconded to the project.

Ms Andrews, a solicitor, has completed the team with a former inspector of taxes and a money advice worker.

They expect to develop a case-load of particularly difficult cases, but hope that many callers will be able to sort out their own problems with the aid of a 32-page booklet, Dealing with your Business Debts, which is available free on request.

'For a lot of people self-employment is the only alternative to unemployment. Their whole self-esteem is bound up with the fact they've now got their own business, and when that is threatened it can be very traumatic. Just the feeling that they are back in control seems to help people enormously, even if at the end of the day they've got to cease trading,' says Ms Andrews.