If you've had a failed business before, does this count against you?

Clive Sawyer
Managing Director, Business Options

A: Business failure is now becoming more acceptable in the UK as it has been in the US for many years. Having said this both franchisors and the banks still look more closely at people with business failure behind them. The best approach is to be open and upfront. Explain the reasons for the failure and it may be that it can be turned in your favour. Becoming a franchisee with the backing of any established franchisor could be the way to ensure that you do not fail again, while using the positive business skills and experience you picked up in your past business. Often business failure can be the best training ground for running a successful business as you have experienced what it is really like to run a business and you are not entering into the venture with rose tinted glasses with the unrealistic notion that it will be easy. Taking on the right person who has experience of business failure should be viewed in a positive light and embraced by franchisors. Taking on the wrong person who has experience of business failure should be avoided like the plague.

Cathryn Hayes
Head of Franchising, HSBC

A: The best possible course of action is to talk to your bank if you have had a previous business failure. They may be able to help, particularly if the debt has been repaid or an agreement with creditors has been reached.

Business failures impact their owners in different ways depending on the type of business. A limited company is a separate legal entity and if unable to meet its financial obligations as and when they fall due, it is said to be insolvent and will eventually cease to exist. The director is not personally liable for company debt apart from their initial shareholding, unless they have given a personal guarantee to the lender.

However, if a director has acted irresponsibly resulting in the failure, they can be disqualified from being a company director for up to 15 years. In the case of sole traders and partnerships the owner/partners will be personally liable for any business debt and can be made personally bankrupt. This will badly affect their credit rating and they will probably find it difficult to borrow money in the future. Until a bankruptcy is discharged (usually after 12 months) the individual cannot act as a company director, effectively preventing them from setting up any new business.