Ltd company directors reveal startling lack of business knowledge

New research has revealed a worrying lack of knowledge among the UK’s Limited company directors.

The survey from CompanyHelp suggested many struggle to grasp key financial concepts, have high levels of misinformation, and are blissfully unaware of the precarious situation many of their businesses are in.

Of the 250 limited company directors featured in the study, 60% said they did not completely understand how a directors’ loan account works.

Meanwhile, 26% incorrectly suggested that a limited company protects directors from all debt liabilities.

More than a third of directors also said that if they have ownership of a company, the money in it is theirs – another incorrect viewpoint.

Perhaps the most concerning point from the survey was that 47% of company directors revealed they did not know the cash flow or balance sheet tests that can be carried out to discover whether a company is insolvent.

This means limited companies could be facing insolvency while their directors are unaware there are any financial issues present.

The lack of knowledge concerning corporate governance is a cause for concern, as it means directors may not know where to turn in the event of a downturn in business.

Those faced with such a situation should contact a corporate recovery specialist to discover the best course of action and the solutions that may be available to rescue their business.

Any financial issues, overdrawn accounts and excess debts could ultimately impact on the bottom line and need to be carefully managed and monitored.

Directors also need to be aware of clauses in new contracts that could make them personally liable for any debts – especially as many of those surveyed were unaware of them.

Personal guarantee clauses can often appear when dealing with company debts and borrowing and could place an individual at risk of personal bankruptcy if not dealt with properly.

The study also revealed a number of business concerns among company directors for the year ahead, which included what the implications of Brexit will be, late payments, employment costs and work place pensions.

More than 20% of directors also said that if one creditor failed to pay in 2017, they would be at serious risk of insolvency, suggesting they are overly reliant on just one major source of income.

By Phil Smith

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