triumphanddisaster - ProFile 3 UNIT 2 Triumph and disaster...

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Unformatted text preview: ProFile 3 UNIT 2 Triumph and disaster DEBT AND ENTREPRENEURSHIP In Shakespeare’s Hamlet, Polonius advises us to ‘Neither a borrower, nor a lender be’. In practice it is difficult for most individuals or businesses to avoid getting into debt. When new businesses go bankrupt, it is usually because they have run out of cash or are unable to pay off, or service, their debts. While US entrepreneurs wear their bankruptcies and failures as a badge of courage, their British and European counterparts find the stigma of bankruptcy harder to accept. GOING BANKRUPT When a business goes bankrupt, a receiver is appointed to wind the business up. Its assets are liquidated, i.e. turned into cash, and the money distributed to its creditors. Many bankruptcies are triggered by the bank which had originally lent the business money. Banks are generally next in the queue after the government and tax departments to have their debts repaid from the assets of a company which has failed. This means it is often not in the interest of another company which is owed money to force the bankruptcy, as they will perhaps only recuperate a small percentage of the money they are owed. CREDIT WORTHINESS AND RISK It is advisable for companies to investigate the financial health of prospective customers or business partners. Standard and Poor’s is the world’s best-known credit rating organization. Smaller businesses are well-advised to ask for confirmation of creditworthiness from their client’s bank before agreeing to supply them. MANAGING CREDIT Supplying credit is often the price of doing business and can lead to firms financing debt by taking out loans themselves. Therefore, wise credit control and the careful management of cash-flow are two essential skills for successful See the ProFile Student’s site: businesses. Credit control has to be carefully managed: some customers habitually stretch the credit terms. Some businesses avoid these problems by farming out billing and collection to factors: factors are specialist companies who collect the debts of other companies in return for a percentage. LIMITED LIABILITY In Britain, investors in businesses once had personal and unlimited liability for all a business’ debts. In Britain the 1855 Limited Liabilities Act allowed for a business to be considered independent of its investors, and solely responsible for its debts. Investors’ liability became limited to what they had invested in its shares. Hence, they became limited - writing Ltd after their name. Public companies, whose shares are traded on the open market, carry PLC – standing for Public Limited Company – after their names. Nowadays, most countries have adopted the concept of limited liability. Its development was an important innovation in the growth of modern capitalism, as it attracted more prudent investors to put their money into businesses. PERSONAL DEBT When novelist Charles Dickens’ father was imprisoned for debt, the young Charles had to glue labels on bottles; an experience which marked him for life. In countries where individuals can easily obtain credit, personal indebtedness is widespread. In Britain in 2005, personal bankruptcy and debt is a growing concern, as borrowing has become easier. Many of these debtors have run up huge debts on credit and store cards. For those who can’t pay, companies may repossess their property, or send in the bailiffs to take goods equal in value to the outstanding debt. Photocopiable © Oxford University Press ...
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