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Art Business Info: NEWS

​about art for artists

Warning Signs: "business NOT as usual"!

20/6/2020

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Picture
In a recession, it's ESSENTIAL that you are VERY aware of the warning signs that "business is NOT as usual".

Be alert to indicators that:
  • your art business is struggling
  • any third party business entities that you do business with are
    • not in the best of business health
    • in need of intensive/emergency care
    • dying on their feet / about to go into administration
    • dead and buried - and in the insolvency courts - which usually means creditors get next to nothing

What follows is a checklist of WARNING SIGNS you should always pay attention to. 
  • These indicators tend to be generic and worldwide
    • local cultures / laws around the world can be very influential in terms of what people do and don't do - and can and can't do
    • my reference to practice/laws/available help tends to relate to the UK (where I live)
  • If you realise you are exhibiting any of these warning signs it's an indicator you should seek help sooner rather than later.
​

Checklist of WARNING SIGNS about business health
​

ALWAYS BE ALERT to warning signs that something is "NOT business as usual". This is what stops many artists from losing out in terms of art they have produced or money they have paid for a service.   
  • I've come across numerous accounts of artists who pulled their work out of an art gallery just before it went under - because too many things made the artist feel uncomfortable.
  • Experience tends to inform actions. If you've seen or heard about it happening to somebody else you learn the indicators and signs.  However you can also learn about them in writing - hence this post!
  • The clever artist is the one that remembers the warning signs and spots them early. (see commentary in due diligence at the end of this post)
Picture
Watch out for the WARNING SIGNS!
SERVICE STANDARDS SLIPPING
  • very often problems with a company first become apparent due to changes in the way they operate
  • change might manifest itself as
    • a drop in standards of the product or service they provide to your art business
    • changes in relationships - in terms of the quality of customer service or "money management" relationship with the other business.
​COMMUNICATION DETERIORATING
  • word of mouth - you hear from others (fellow artists, clients, other suppliers) that a business is causing concerns.  Talking about a business tends to be triggered by actions they have taken e.g. 
    • art galleries not paying fellow artists the money they are due
    • clients walking away and placing their business elsewhere
  • slow response to your communications - before they disappear from view, individuals tend to be difficult to get hold of or very slow to respond to your communications. They may be:
    • very distracted by all the work they are engaged in with trying to keep their business afloat
    • in denial and sliding into depression because they are overwhelmed and do not know what to do. Talking to business contacts is the last thing they want to do
    • a slow response usually precedes.....
  • "radio silence" - a term used for when key individuals disappear from view and will not return calls or respond to emails or letters and/or communication via the internet suddenly stops with no prior warning. Unless there is a health issue for the lead individual (or a member of their family), the reason normally lies in the near terminal health of the business. Individuals in the art world who are prone to this type of "radio silence" behaviour are:
    • inexperienced gallery owners;
    • unbusinesslike and/or lazy/bored website designers
    • embarrassed clients for an expensive commission - whose aspirations have overreached their budget.
    • the sociopath - who may occupy a number of different roles
PAYMENTS
  • LATE Payments (owed TO artist) - normal business terms (in the UK) are that you get paid in 30 days (and no later than 60 days - this is the law!).
    • Artists that allow normal payments due (eg payments for art sold by a gallery) to slide beyond 60 days are already allowing third parties to mess them about - and you should always review the terms and conditions of all contractual agreements. (Note these normally do not apply if they conflict with the law i.e. the law usually overrides unfair conditions)
    • ​businesses which are in good business health should have a good track record of making payments due on time
    • businesses faced with financial challenges often experience cash flow problems. Payments are slow and they arrive later and later. If late payment continues beyond the odd late payment or 60 days for routine payments you need to pay VERY close attention to what you are owed.
    • Those lacking experience or expertise in managing money and cash flow in this type of situation often do very silly things e.g. they:
      • raid the cash due to the artist (their creditor - i.e. those the business owe money to and is liable to pay)
      • to pay those people asking the third party for money - for goods and services that business has already received or ordered.
      • This is a very slippery slope. Businesses can start to slide very fast down that slope - into bankruptcy if the market context is difficult.
    • Context is relevant. The current context is VERY difficult!
  • No Payments - businesses which totally fail to pay after a number of representations are almost certainly on their way to bankruptcy and/or winding down the business. If this happens, it's not unusual for artists to not get paid any or all of the money due.​
​
ACTION: If you are having any difficulty getting paid 

You should
  • CONTACT your debtor: send another invoice itemising the interest payable for all sums outstanding for more than 60 days (see Late commercial payments: charging interest and debt recovery | Gov UK)
When a payment becomes late
You can claim interest and debt recovery costs if another business is late paying for goods or a service. If you agree a payment date, it must usually be within 30 days for public authorities or 60 days for business transactions. 
Late commercial payments: charging interest and debt recovery | Gov UK
  • ​CONTACT: the Small Business Commissioner 
    • who have advice about how to deal with an unpaid invoice. 
    • who published the report Poor Payment Practice in the Creative Sectors: Actions for Change in April 2020
small businesses should contact the Small Business Commissioner if they have any late payment or poor payment issues
Payment culture crucial for coronavirus economic recovery | ICAEW
  • If you get no payment or a satisfactory response (and then payment) make a claim for payment via the Courts 
  • Request a judgment if you made your claim online and they still do not pay up. (You may be asked to use a meditation service to avoid further proceedings)
  • If successful in your claim, you can institute recovery proceedings. Bear in mind the third party firm who owes you money also has to pay for the Bailiff / Debt Collector not you!
  • CHECK the business online at Companies House and look for the last accounts filed. Check whether their assets exceeded their liabilities or vice versa.
    • Search the bankruptcy and insolvency register
    • Search for disqualified company directors
  • REPORT the company to the Police and local Trading Standards if you think it is "trading while insolvent" i.e. undertaking "wrongful trading". This is illegal and can result in a fine and/or prison sentence.
    • Coronavirus exemption: However note normal rules do not apply at the present time as the government understands a number of companies will be technically insolvent while they dig themselves out of the financial impact of coronavirus. 
On 28 March 2020, the Government announced new insolvency measures to support businesses under pressure as a result of the coronavirus outbreak.
The Government will amend insolvency law to give companies breathing space and keep trading while they explore options for rescue and temporarily suspending wrongful trading provisions retrospectively from 1 March 2020 for three months. You can find out more here.
​Directors must still be mindful of their fiduciary duty to creditors and shareholders and early advice is always the best protection against any criticism.
Is insolvent trading the same as wrongful trading? | Real Business Rescue
ACTION: If YOU are having any difficulty making payments to 3rd parties

If YOU are finding it difficult to make payments due on time, do note that 
  • this can have an adverse impact on the credit rating for you as an individual or your business 
  • putting your head in the sand about financial difficulties is injurious to the mental health of you and your loved ones
  • you should always talk to people about the difficulties you are facing - and ask for help. People cannot help you if you don't ask.
  • YOU MUST review options to pay off your debt ​​

​HELP:  Below in the Reference Section, I've included some helpful links for artists and small art business who need help with money management.
​
If you cannot pay off your debts, you can be made bankrupt.
Options for paying off your debts | Gov UK

Due Diligence
​

Due diligence is the practice of reviewing the past/recent business conduct of those you do business with. It's particularly important in relation to:
  • those who receive your goods and you receive money in return
  • those you pay in advance of receiving goods and/or services
Due diligence is the investigation or exercise of care that a reasonable business or person is expected to take before entering into an agreement or contract with another party....
Wikipedia (Corporate Law) - Due Diligence
Due diligence activities are detailed and routine in relation to business acquisitions and mergers

However it's also common sense to be diligent in doing some checks in relation to any party you may be trusting with a significant amount of your assets or money.
REFERENCE:
  • Government to amend insolvency law to keep businesses trading | The Gazette (Official Public Record)
  • Corporate Insolvency and Governance Bill 2020: factsheets | Gov UK
  • Get information about a company | Gov UK
  • The Small Business Commissioner
  • Payment culture crucial for coronavirus economic recovery | The Institute of Chartered Accountants in England and Wales
  • Make a Court Claim for Money | Gov UK
  •  Money Claim Online service | Gov UK
  • Apply to bankrupt someone who owes you money | Gov UK

Money Management Advice for Artists and Art Businesses
  • Coronavirus and your money | The Money Advice Service (part of 
  • Fact sheet no. BDL 74 Coronavirus advice and help (June 2020) | Business Debtline 
  • Coronavirus and your finances: FAQs | Experian

NOTE: As many of you are aware I used to be a qualified accountant and finance professional - hence why I write about matters relating to money management. However I resigned from my professional institute when I retired and no longer keep up to date with all relevant information on a topic. As it states on the front page of this website:
  • Content and the law change all the time - and it's impossible to keep up with if you're not working on the topic full time. 
  • I do research topics carefully. However, I am totally unable to warrant that any/all information is ​
    • complete and/or
    • professional and/or
    • wholly accurate and/or 
    • all links lead to the most current information.​
  • ​Hence all information I provide comes without any LIABILITY whatsoever to you for any choices you make. 
Note: Images by paulracko | Pixabay and Clker-Free-Vector-Images | Pixabay
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