Dealing with debt
It's a tough old world out there, getting tougher all the time. There was a time when gaining a professional qualification was seen by many as a passport to a well-paid job for life. The recession of the late 1980s and early 1990s changed all that, hitting the construction and property markets with particular ferocity. Even now, with over 10,000 bankruptcies per month we can hardly claim to be living in boom times.
For a variety of reasons, many architects are still struggling for survival. No business is immune from problems which can, if ignored, eventually lead to serious debt, insolvency or ultimately bankruptcy. The recent collapse of Fletcher Joseph is only one such example.
Insolvency can be defined as being the inability to settle one's debts as they become due, or having debts which exceed one's assets.
Serious debt problems typically arise as a result of:
A major client going into liquidation or bankruptcy
Excessive use of instant credit
Failure to anticipate major tax bills
Over-commitment on large mortgages
Under-quoting in order to obtain major contracts.
Even without any of these major events, a lack of profitable turnover may lead to a financial crisis which remains undetected until the debt is too large to cope with by ordinary means. It is therefore important to recognise the tell-tale signs of impending problems:
Excessive borrowing on credit cards and small loans
The use of personal finance to support the business rather than using the business to support personal finance
The inability to provide in advance for tax and vat liabilities
Failure to adopt a lifestyle capable of adapting to the sudden and dramatic changes that can, and often do, occur in one's business's cash flow
Failure to run effective management accounts, leading to over-optimistic anticipation of profits
The need to suspend pension payments or to cash in endowment policies
The need to ask one's accountant whether the business is profitable
A static or declining client base
A growing dependence on a very few clients whose financial future can never be certain
A growing debtors list, with clients becoming insolvent.
The importance of obtaining professional advice as soon as a serious problem arises cannot be over-stressed. Under Standard 8.2 of the Architects Registration Board (arb) Code of Professional Practice and Conduct (1997), personal insolvency is the exception to the rule that an architect's private life cannot give rise to disciplinary proceedings, as it may effect his/her professional solvency.
Failure to face up to a worsening situation can result in panic borrowing, unrealistic promises to pay, and spiralling debts, repossession, bailiff enforcement and the public humiliation of personal bankruptcy.
Any architect in this position needs professional advice, fast. There are a number of routes to be taken, but proceed with care. A client who chooses the wrong architect may get an inappropriate building that is expensive to build and run and yet does not serve its purpose effectively; the same is true with debt management. A reputable debt-management consultancy should have no ties with any other interested parties, should specialise solely in resolving indebtedness, and should have protecting its clients' best interests as its sole objective.
As with architects, a range of solutions, a proven track record, references from other professionals in the field, and satisfied clients are the necessary attributes of a truly dependable debt-management consultancy.
Appointment of a good debt-management consultancy should result in the resolution of the client's total debt with the minimum of public display, minimum cost and the minimum upheaval of your business. It should protect your home, your business, and your reputation.
The tools at the disposal of a good debt management consultancy include:
The wisdom and experience that come from dealing with creditors for many years
An excellent relationship with all known major creditors, and the credibility to negotiate on their client's behalf.
The impartiality to propose the best solutions to the client's problem from the client's point of view.
The ability to create breathing time in order to develop a capability- based long-term strategy rather than merely succumbing to creditor pressure.
Access to a panel of licensed insolvency practitioners so that specific arrangements can be implemented that most fit the client's needs.
Philip Stone is a partner with idc, a leading independent debt consultant with a panel of licensed insolvency practitioners. Architects concerned about their financial situation are invited to contact idc on 07071 223361 for immediate advice and a free initial consultation
WHAT IS BANKRUPTCY?
Bankruptcy is the state of being insolvent.
You are insolvent when either you can't pay your bills when they fall due, or where your total assets are less than your total liabilities.
Anyone with a total indebtedness of £750 or more can be, and sometimes is, declared bankrupt.
Customs and Excise and the Inland Revenue are by far the greatest issuers of bankruptcy petitions
(about 80 per cent of the total of 10,000 issued each month).
There are about 1200 licensed insolvency practitioners in the country, but fewer than 200 of these take
a strong interest in personal insolvency.