Running a successful and profitable business can be tough. Without asking, well-meaning friends and family can offer advice to show support when you need it most. We’re not dismissing informal advice from friends – it has its place. If something is on your mind, it’s good to talk about it.

The problem is when the advice is misinformed or factually incorrect. If someone acts on that ‘advice’, they could be making the situation worse and creating more problems further down the line.

Let’s take a look at some of the common myths presented as business advice.

Common myths presented as business advice that could do more harm than good.

Myth #1 – “My mate spends whatever he likes from his business account; he says it’s his money.”

First things first – the money being spent from the business account belongs to the company.

When the business is performing well and there are profits or distributable reserves, then yes, your mate (the company director or business owner) can take cash out of the business.

Otherwise, your mate will be taking money out of the business, not through profits, but via a Directors Loan Account (DLA) instead.

While the company is solvent, this isn’t a problem. However, if the company is financially in trouble and has outstanding debts to repay, then the DLA comes under the spotlight. Your mate will be liable to repay what is owed to the company so that creditors can be paid.

What happens to your Directors’ Loan Account (DLA) when your company is insolvent?

The lesson here? Not everyone paints the full picture!

Myth #2 – “My mate closed down his own company, I don’t need an IP to help me…”

As with any professional service, there is a cost. Insolvency is no different.

When the company is distressed, and the directors are facing the reality that the company is insolvent, friends might suggest the DIY route as a viable alternative to a licenced insolvency practitioner.

Only a licenced insolvency practitioner can act as a liquidator, so in this example, the mate isn’t telling the truth – or worse – hasn’t actually shut down the company properly.

Perhaps this mate had a solvent company, who knows, but the only source of qualified advice for closing a company is from a licenced professional.

Myth #3 – “My mate said you can close a company to avoid repaying creditors and just start another one on the side.”

This is a popular piece of ‘advice’ we hear shared.

The missing piece of information that the ‘mate’ failed to mention is that you run the risk of becoming personally liable for the new company’s debts. The limited liability protection of the new company will fall away, leaving you very much on your own.

All of a sudden, that option is not quite as attractive as it seems, is it? We certainly wouldn’t recommend following this mate’s advice.

The best source of advice.

If your company is distressed, or your cashflow forecast indicates there’s some difficult times ahead, and you’re genuinely concerned about the future of the business, the best source of advice is from a licenced insolvency practitioner.

Here’s three reasons why you should talk to TruSolv:

We’re licenced, qualified and regulated.

Our team of Insolvency Practitioners are licenced and regulated in the UK by the Institute of Chartered Accounts in England and Wales (ICAEW). This means they’ve been externally qualified to provide such advice and their competences are regularly reviewed.

We’re realistic and fair.

Some advisors will focus on directing you to a limited choice of options, or they’ll simply tell you what you want to hear, so you’ll work with them. Our recommendations to you will always result in what’s best long term. We understand the sensitivity to the situation, but it’s our job to be realistic and fair.

We have decades of experience.

Our Insolvency Practitioners have been working with company directors facing insolvency for over thirty years. We’ve advised businesses of all shapes and sizes, from a variety of sectors. Many of our team also have practical experience of running businesses themselves – we can sympathise with what’s happened. We’re trusted time and time again by other professionals to help their clients who are facing insolvency and manage the situation to the best possible outcome.

Call our team on 0808 196 8676 to get the qualified advice your company needs.