Fitness business weighs up options

This client is 46, works in the fitness & health industry, is single with no dependents and lives in private rented accommodation. 

The Full Picture

Before the Covid-19 pandemic our client had significant bookings agreed for the coming 12-month period. She had a sound business and was on course to have a successful trading year.
 
Our client’s fitness business included group classes, which were booked up in advance. Some classes were due to take place outside of the UK and advanced payments were used to pay for travel arrangements and accommodation. The client also used some of the money from advanced bookings to clear previous debts that accrued due to a period of illness.
 
Unfortunately, since Covid-19 hit in March of this year this client’s business has been severely impacted as she could no longer trade or fulfil her commitments to provide the group classes abroad due to the travel restrictions. As the client’s income had effectively dried up overnight, she has had to apply for Universal Credit (UC). The client has proactively contacted each of her customers offering to reschedule many of the classes to 2021.  Around 50% took up the offer to re-book although some demanded refunds and the rest were unable to or were undecided.

How We Helped

This client contacted Advice NI’s Business Debt Service. The Adviser assessed her financial situation and ascertained that she had current debt of approximately £40,000. This included the monies from her customers, £22,900, and credit card debt of £17,100. She has UC income, savings worth £2,000 and a car. Therefore, she had £2,000 available to repay her creditors.
 
The adviser discussed the client’s options with her, including asking her customers to seek refunds from their various payment methods, reclaiming of insurance, and making use of the Government Bounce Back Loan scheme. Unfortunately, the client was too late to apply for the small business grant.
 
The adviser looked at the main options to address her debt including:

  • Bankruptcy:  This option would release the client from all of her debt (credit cards and business creditors/customers).  However, the client was concerned that this may have a significant negative impact on her reputation in her sector. This would be her last resort if she was unable to repay her debt.  
  • Debt Management/IVA:  The client could not afford to consider these options, however, the adviser did discuss the possibility of using Token Payments as a mean to address her non-priority creditors until she could return to work.

The client was also advised to pursue refunds where applicable and see if any of the money could be clawed back through insurance, which accounts for £3,000, which may be used to rebuild her business or repay her credit cards in a lump sum offer.

The Outcome

The client intends to use her Bounce Back Loan to deal with customers who had prepaid for the fitness classes. She also plans to provide the pre-booked classes for her students next year (without any additional charge), therefore protecting her reputation and enabling her to start afresh when things return to normal.

This client had already arranged for a payment holiday in respect of her five credit cards.  When these expire, Advice NI’s Business Debt adviser will negotiate token payment arrangements for an initial period of six months to give the client time (which can be extended) to see if she can keep her business alive.

The client has been extremely grateful for the ongoing support.