Most businesses have some form of debt, and this is nothing to be ashamed of. However, if a business struggles to keep up with its debts and they keep on growing, there will be a limited time before it becomes insolvent.
The answer to the question about how long can a business run up debts is dependent on how much the debt is and who the creditors are. To deal with the situation of too many debts, the first thing to do is sort debts into priority and non-priority ones.
Priority debts
There are some debts that need to be regarded as a priority. Firstly, there are the debts to the government and local authorities in the form of VAT, tax, national insurance and business rates. If any of these get into arrears, the business can face fines.
Rents for business premises are also a priority. Being evicted from the workplace because of not being able to pay the rent could close the business down.
Money owed to major suppliers can also be regarded as priority, as not paying them could result in making it impossible to obtain supplies that are vital to the business.
A limited company also needs to pay the accountant who audits the company accounts.
Non-priority debts
Some debts can be regarded as non-priority and could be reduced by regular small payments. If an overdraft facility has been arranged at the bank, then though interest will be charged, it may not have to be repaid.
If a business has a company credit card, then for a while, the minimum payment amount can be made, but at the cost of extra interest. Payments can be delayed on non-essential business suppliers.
How long can I keep going?
As long as a business gradually reduces its debts, the business can carry on trading if there is enough income coming in.
Priority debts do not have to be paid all at once. Negotiations with HMRC can result in the organisation accepting a plan to pay off arrears through monthly payments. Business rate arrears can also be paid monthly by arrangement with the local council.
Get help
If you do not know how long your business can carry on with its level of debts, seek out the help of an outsourcing finance company. If they think your business is viable, they will create a debt management plan so that your business can continue trading and eventually get out of debt.