Total household borrowing in the UK has recently topped £200 billion for the first time since 2008. It’s a statistic that reaffirms the nation’s growing debt issue, the likes of which was last seen during the global financial crisis almost a decade ago.
Here Amy Mehers, Associate Director at LC Advisory – a division of the Leonard Curtis Business Solutions Group (LCBSG), providers of the Lifecycle network – takes a closer look at the associated issues and talks about the support they provide to business owners and their accountant advisers to overcome financial distress.
There are reportedly 2.9 million people in severe financial difficulty in the UK and an additional 9 million “teetering on the edge” of it, according to debt charity StepChange.
A significant proportion of these are SME owners who may have put themselves at risk of personal insolvency in an attempt to stave off workforce redundancies or company business cashflow pressures.
For owners of struggling businesses, their stakeholders and professional advisers, seeking positive strategic advice to enable them to retain control of their personal and corporate finances is key.
Setting the scene for possible personal insolvency
Household debt as a proportion of household income rose from 95% in 1997 to 160% before the financial crisis of 2008. Fast forward to today, and the Office for National Statistics forecasts it will reach 153% in 2022.
According to other figures from the Bank of England, total UK household debt stands at £1.5 trillion, which is an average of £28,000 for everyone over 16 in the UK. The majority – some £1.3 trillion – is made up of mortgages and the remaining £200 billion of credit cards, overdrafts and loans.
Bringing these figures to life, last year alone over 90,000 personal insolvencies were recorded across England and Wales – marking a 13.1% uplift compared with 2015. Figures from April to June this year state that one in every 489 adults became insolvent over the past 12 months, a slight drop in comparison to the Q1 rate of one in 486.
Providing insolvency support to SME owners
LC Advisory – a division of the Leonard Curtis Business Solutions Group (LCBSG) – advises an increasing number of business owners who have tried to keep their companies afloat through years of cheap and unsecured consumer credit. Commercial cashflow pressures can lead to a level of personal debts that they may now find unmanageable. It’s a problem that will be further exacerbated when, not if, interest rates rise.
Other clients have provided personal guarantees against business finance facilities and have become personally liable for them and their subsequent enforcement by creditors when repayment agreements can’t be reached.
Retaining control of the situation is key if a positive outcome is going to be achieved. Access to our specialist knowledge and experience greatly increases the chances of a successful resolution – not only for business owners but in order to protect their often long standing relationship with their accountant advisers.
However complex the situation – and regardless of the amount owed – the advice given by LC Advisory is always practical and non-judgemental.
For accountants and their clients, it’s crucial to tackle issues immediately. Most cases arise by either failing to recognise a problem or making bad decisions when it is recognised.
And by working in partnership with the accountant, we can then provide a support network for future planning.
About LC Advisory
From 13 offices across the UK, LC Advisory provides directors of struggling businesses, their stakeholders and professional advisers with positive strategic advice to enable them to retain control of their business.