Debt management: the penny drops

With the Bank of England predicting interest rates are more likely than not to increase by the end of 2018 and with Brexit on the horizon, the time is right for pub operators to get debts in order and review costs.

As Stuart Pawelczyk, director at Christie Finance, says: “The market is performing OK at present, but the approach of banks and lenders is changing all the time. Now is a vital time for operators to review what they have got, including wage bills and utilities but also financing costs, with the potential financial headwinds coming forward in the near future.”

Although it is certainly prudent for operators to review any existing debts they may have and look for better rates and deals, the market is still buoyant for those seeking new finance according to Pawelczyk, with a range of lenders offering funding for quality pub operator looking to take on new sites or expand their current businesses.

He says: “But now more than ever it is important to have an expert in your corner who knows which banks and lenders to go to in the market and has knowledge and established relationships with them. Some banks aren’t lending but operators shouldn’t lose hope because there are always options available.”

Before licensees apply for a loan or mortgage, however, they should ensure they have up-to-date financial records and accounts and a clear plan of what they need.

As Paul Thompson, principal of Acorn Finance, a broker specialising in SME funding for the licensed trade, says: “Airlines are great at making every possible square inch of an aircraft profitable and are constantly looking at ways of improving this without diminishing their customer experience, is this something you can do to arrange the lowest cost extension possible?”

He adds: “Don’t apply for a loan or mortgage without knowing exactly what you need. While in many cases, someone with my experience might be able to give you options of what is available in the marketplace, if you only approach your own bank (like 60% of other UK business owners do), they may turn you down because they don’t understand what you need.”

Dealing with debt

With ever-increasing costs and unpredictable trading conditions, such as the ‘Beast from the East’ cold weather snap, it can be hard for licensees to prevent debts building up and spiralling.

According to the Licensed Trade Charity, debt is still the biggest issue publicans contact them about, with the charity last year seeing a 14% increase in people needing debt relief support.

The charity says business rates, rent and tax are generally the biggest types of debt that the licensees they help face.

Robin Tarling, managing director of Bridgewood Debt Solutions, which assists about 300 licensees a year with debt issues, says, in his experience, the HMRC is generally always the biggest creditor. 

He says: “The HMRC is often perceived initially as less proactive in chasing debts, and licensees who are spinning plates with debts will pay the people who are chasing them on the phone. But you should treat all creditors equally and, ultimately, it is the HMRC who are more likely to distrain on assets (seize good or property) or petition for bankruptcy.” 

Other frequent creditors for publicans are utility companies, Sky/BT Sports and PRS/PPL (which look after music licensing) and many licensees often have personal as well as business debts to tackle.

To help put the brakes on debt, Alex Clarke, year end and tax adviser at accountants and business advisers EKW Group, recommends: “The key to prevention of debt is having up-to-date financial information – if you have this, then you can quickly make changes to your business model. The majority of the time, financial difficulty arises in the annual accounts. At that stage, it can be too late to make the necessary changes to address the problems that have taken place.”

Communication is key

If your debts are beginning to mount up, the Licensed Trade Charity’s marketing and charity services director Liz Gaffer advises tackling the situation quickly. She says: “The earlier people recognise there is a problem, the easier it is to resolve.”

Bridgewood’s Tarling advises speaking to the creditors concerned before the situation gets out of hand. He says: “The worst thing you can do is not communicate because creditors will draw their own conclusions about your situation and will be more likely to escalate their collections activity. Explain the situation and what you are doing about it.”

He adds: “Don’t make false promises, but, where you can, state your intention to pay – how much and by when.”

IVA advice

A Cheshire licensee, who has just come through a five-year IVA supported by Bridgewood, says: “We delayed making the decision to go into an IVA (individual voluntary arrangement) and I wish we had made it sooner. Don’t kid yourself. Be realistic – this is where involving a third party to help you resolve your situation really helps.”

He adds: “When you are in debt, you are stressed and at a low ebb, and your confidence isn’t there for dealing with companies so it is important to have someone to negotiate with creditors for you and offer you help and advice along the way. Our debt payments were very high and we couldn’t manage them so Bridgewood helped renegotiate for us.”

The licensee also renegotiated rent with their pub company too. He says: “We were very transparent with our figures so they could see what we could afford and what profits we were making and were able to keep and move forward in the business.”

Solutions and support available

Serious debts need not spell the end of your business. As a spokesman for the Insolvency Service says: “It is important for companies in distress to realise they do have a range of options available to them before they decide to close their doors for good. 

“There is a vibrant business turnaround advisory sector in the UK that has experience at helping troubled businesses return to profitability.”

The spokesman adds: “Even when a company is in serious difficulty, it remains possible to reach agreement with your creditors to help you continue the business. You should seek advice from a qualified insolvency practitioner who can help you secure the best outcome for you, your business and your creditors.”

But if the only option for you or your business is to go bankrupt then there is a wealth of help and support available to help you, including from the Licensed Trade Charity.

Richard, a former licensee who went bankrupt last year, says: “In my situation, it was a big relief to go bankrupt. I slept at night when I hadn’t been sleeping at all with the stress of everything. The Licensed Trade Charity is such a great organisation to help people in this situation. It isn’t just one-time support they offer. It has been ongoing help including advice and financial assistance.”

The Cheshire licensee adds: “The IVA has made us stronger and we review everything in the business more regularly now, including supplier costs. We are in a better place now to ride out problems, with contingency funds to cover every eventuality.”

For licensees with past financial issues, worried about getting finance in the future, Thompson of Acorn Finance says: “There are lenders in the market for almost any situation – so even if you think it’s impossible, it’s worth talking to a specialist licensed trade broker to discuss your options. An initial assessment should always be free.”

Bridgewood’s Tarling adds: “Debt isn’t the end of the world for licensees. It is possible to get out of it and move forward positively and we have seen hundreds of licensees do this.”