Assets, Debt and the Business – A Guide

SMEs form the backbone of Britain – powering our economy and driving its growth; yet these same business owners are the ones that are struggling under the stress and strain of debt. One in four are suffering from bad debt, while overall they’re chasing £14.9bn in late payments.

As a UK business owner, it pays to take stock of your financial circumstances. In this guide, we’ll help you tackle the basics of assets and how they relate to any debt problems you may be facing.

Assets and debt – Making sense of it all

An asset is any property or resource that has value which can be converted into cash. Private individuals, companies and public bodies all own assets. For an individual, an asset may be a car, home or savings account; while for a company, an asset could be a computer or ‘accounts receivable’ (e.g. money owed to them).

Personal assets

Personal assets include…

Cash and things that are equivalent to cash – such as savings accounts, bonds, your retirement account and bank account,

Investments – annuities, bonds, the cash value of your life insurance policies, mutual funds, pensions, retirement plans, and stocks

Personal property – which includes everything that you own, such as your car, home, furniture, jewellery, collectibles etc.

Property or land, as well as any structures that are permanently attached to them

Business assets

The assets of a business can typically be found on a company balance sheet. While a balance sheet isn’t required for those who are self-employed or a sold trader, for tax purposes they may still have business assets – such as a vehicle, property or the like.

Current assets – are assets which could be transformed into cash within one tax year or business operating cycle. These assets are central to everyday operational expenses and investments.

Current assets include:

Cash and cash equivalents: including certificates of deposit, and cash

Marketable securities: debt securities or equity that’s liquid

Accounts receivables: money owed by customers that are due in the short-term

Inventory: goods available in your stock or raw materials

Fixed assets – are noncurrent assets which are used in the running of a business to create goods and services. Assets in this category have a lifespan of more than 12 months.

Fixed assets are listed on a balance sheet under ‘property, plant and equipment (PP&E)’.

Fixed assets could include:

• Vehicles – such as vans and trucks
• Office furniture
• Machinery
• Buildings
• Land

Key question: "How will an IVA affect my business and its assets?"

Unlike some other forms of debt solutions, IVAs allow for you to continue your business. For example, with bankruptcy you may be required to sell the tools and assets you own that are needed for your business. In the case of an IVA, there are numerous benefits for the business owner…

An IVA provides special considerations for the self-employed

If you’re considering an IVA or any other debt solution, you should seek expert independent advice before moving forwards. Namely you should create a cashflow statement for the coming 12 months to assess your income and expenditure. With this insight into your business, you should then have a good understanding of your business finances to weigh up against your personal living costs.

An IVA can allow you to prioritise repayments to trade suppliers over your personal creditors

With an IVA, creditors aren’t allowed to force you to sell assets that are necessary for the running of your business, and even if they were, it wouldn’t be in their interests to do so, as it would affect how and even if you could make your monthly repayments.

An IVA could help you avoid certain legal issues

Some self-employed entrepreneurs could run into trading problems in the event of bankruptcy. One relatively common example is where a business owner holds a lease which has a ‘no bankrupts’ clause. An IVA would help a business owner in this particular example.

An IVA could be the most suitable solution for those in a business partnership

In a partnership, each partner is personally responsible for the debts of the business. Because of this, should either partner go through bankruptcy their personal assets will be at risk, while the partnership business would also be dissolved as a part of the bankruptcy proceedings.

IVAs can be a suitable debt solution for one or both partners in a partnership, including for the coverage of tax debts.

An IVA could help if you own a franchise

Franchise companies are treated in the same way as a traditional, ‘built-from-the-ground-up’ business, meaning that its assets are at risk when undergoing bankruptcy proceedings. In this instance, once again, an IVA protects both your business assets as well as your personal assets.

An IVA would allow you to retain your position as a director

As a director of a company if you wish to go bankrupt, you’ll need to resign your position first. For the duration of the bankruptcy (e.g. six years) you won’t be allowed to hold a director position, although you can continue in an employee position instead.

An IVA not only protects your personal assets, it could also allow you to continue as a director. You should note however, that the terms of your directorship may not allow ‘insolvents’, and as an IVA holder you would be classified as insolvent for its duration (e.g. 5 years/60 months).