A wintry chill is blowing through your fledgling business. Your biggest customer has gone belly-up and your suppliers are getting twitchy about late payments; what's more, you've got a huge tax bill. It's looking grim, and because of all those personal guarantees you signed when you set up the business the spectre of bankruptcy is looming. Time to do a Reggie Perrin?
PRIORITISE YOUR DEBTS. Most commercial trading partners will accept reduced or delayed repayment of debts. The Inland Revenue and Customs & Excise are renowned as the harshest of creditors - they are together responsible for more than half of all bankruptcy petitions, and are usually resistant to any other forms of voluntary agreement. So pay tax bills first.
SEEK ADVICE. Insolvency practitioners are trying to shed their image as company undertakers and reposition themselves as a rescue-and-recovery service. According to Tim Grundon, spokesman for their trade association R3, they should offer a free consultation, and may suggest options for staving off bankruptcy that you hadn't thought of. But don't call the ambulance chasers who advertise on satellite television or in newspapers: they'll take your money but you'll probably still end up bankrupt.
TALK TO YOUR CREDITORS. Most trade creditors will support you if you're honest, according to Gill Hankey of the Bankruptcy Advisory Association. 'They may well take a different attitude if they feel they are being fobbed off and they find out later how bad the situation is,' she says. Talking to your bank may not be such a good idea, however. They have earned a reputation for pulling the plug on small businesses at the first sign of problems.
DON'T HIDE YOUR ASSETS. When a bankruptcy petition looks likely, it may be tempting to squirrel away some assets - for example, by transferring your home into your wife's name. Don't even think about it. The trustee appointed to administer your estate can overturn any such gifts or transfers made during the five years running up to a bankruptcy. Creditors will also expect full disclosure before agreeing to reduced or staged repayment. If you've still got the E-type and you're holidaying in the Seychelles, they're unlikely to be sympathetic.
CONSIDER AN IVA. If your creditors won't accept an informal agreement to reduce or postpone your debt, your last-ditch chance of averting bankruptcy is an IVA - an insolvency voluntary agreement. It must be supervised by an insolvency practitioner and will cost from pounds 1,500 upwards. If you are a professional, such as an accountant or lawyer, your status may be at risk if you become bankrupt, so it's an important option. Peter Hughes-Holland, head of business recovery at accountants Chantrey Vellacott, says: 'From day one, you have to persuade creditors that they are likely to get a better return than they would from a bankruptcy.' But never be over-optimistic about how much you can repay.
LOOK ON THE BRIGHT SIDE. If the financial hole you are in is simply too deep, bankruptcy may be the best option: it provides protection from your creditors and means your debt will be discharged in three years. And since May last year, your pension has been protected in bankruptcy. You may even keep your home if you have no equity in it.
START AGAIN. In the US, many successful businessmen have three or four failures behind them, and it's now becoming more acceptable in the UK. A history of bankruptcy won't necessarily stop you from getting backing for a new venture.
DO SAY: 'In the light of our difficult trading situation, I am prepared to make full disclosure of my personal financial position in the hope that we can reach an agreement on repayments.'
DON'T SAY: 'If any creditors ring, tell them you've no idea where I am.'