A worrying jump in personal insolvencies has been reported by the Government between April and June this year. The added threat of interest rate rises in the next 9 months could mean extra pressure on UK households and the economy in general.

If your business provides goods or services to other small businesses or individuals then you need to ramp up your credit control and customer vetting processes if you haven’t already. Taking on a big new contract may be a massive ego boost, but if your customer goes under you are unlikely to see any payments.

Using credit checking agencies such as Experian (www.experian.co.uk) or Creditsafe (www2.creditsafeuk.com) can help safeguard you and your business against bad debts that could cripple your business. Also, if you aren’t already trading through a limited company, have you fully considered the benefits of trading with limited liability?

As an example, presume your business is hired to undertake a large job worth tens of thousands of pounds. You will need to bring in subcontractors and buy materials up front, which you have agreed credit terms with your suppliers for. Halfway through the job, your customer goes bust and you are left at the end of the long line of their creditors owed substantial amounts of cash. You are also left to settle the accounts of your suppliers who have supplied goods and services directly to you.

This is a horrible and extreme situation to be in, but entirely realistic. If you were to find yourself in this position and were still trading as a sole trader then you would be responsible for meeting all of your debts from both the business and your personal income and assets. If the cash runs out, your suppliers might take you to the small claims court and you could end up with a County Court judgement on your credit file, or worse.

While operating through a limited company would not bring about a satisfactory conclusion to such a grim situation, it would mean your company alone was liable for the debts and once the cash ran out, you would be able to wind the company up rather than face potentially losing your personal savings or your home.

Quite often very savvy business owners can find themselves caught out by other people’s reckless behaviour or simply fall victim to unforeseeable situations. There are many ways you can and should seek to minimise the risk your business faces with a bit of forward planning.

We can help you set up a limited company and transfer across your business with minimum fuss. Get in touch if you would like to discuss how we can help you.