Fluctuating business profits When DMP is right choice
Summary: Fluctuating business profits - This paper explores Debt Management Plan (DMP) as an option for those who are self-employed or Directors of companies who face cash flow problems due to erratic income.
Fluctuating income
One of the biggest problems facing many small (and not so small) businesses is the fact that income can be unpredictable. It could be that workload is impossible to predict, it may to do with seasonal factors and it could be that those who owe us money are finding it difficult to pay. In such circumstances, it is difficult to meet all financial responsibilities and it may be impossible to pay ourselves enough to meet personal living expenses and debt repayments.
Budgeting problems
This in turn makes financial planning notoriously difficult. Those offering financial information stress the importance of a sensible budget, but fail to take account of those of us whose income can vary significantly. Of course we do need to know how much we need to meet our living expenses. Ideally we need a buffer built up in the better days to help us through the less good days, but this is not always possible.
Can a Debt Management Plan (DMP) help?
It may. The trouble with most debts is that they want a consistent monthly payment which we may be able to afford in the good days but creates real problems in the less than good days. A DMP would enable us to repay the debts over a longer period of time. We could start the repayment level at a cautious level to ensure we could make the payment every month. The plan is flexible meaning we can always change the repayment level if overall income increases. And for some - if lump sums occur, we can inject such income into the plan (or settle with creditors) in order to reduce the repayment period.
Thus a DMP has the effect of buying us time. We may not want to go down the insolvency route of bankruptcy or an IVA, but we do need help at the moment. Whether short term or longer, the DMP will enable the debts to be kept under control and in all likelihood, the creditors prevented from taking further action.