Is It Easy To Run a Business?
15/8/2017 | Creditors Voluntary Liquidation
Anyone who's ever run a business knows the answer to this question!
Michael bought a profitable engineering company around 18 months ago for over £500,000. He brought in his son (Chris); Chris was to help him manage the company. Michael was in his early 60's and he'd borrowed the monies to invest by remortgaging the family home.
Michael and Chris came to see me last week because the cash flow of the business was poor. At first, especially with a full order book, I couldn't understand the problem. They showed me some draft accounts for the last year which had a profit of £100,000.
When I quizzed them about the accounts it became clear there were bad debts in excess of £100,000 so they were actually trading at a loss. They had been to the bank to try to raise further finance which wasn't forthcoming. Factoring was unsuitable and there were no further resources available to Michael. We looked at the cash flow on a weekly basis for the next 6 weeks and the funds needed peaked at around £75,000. The money had run out.
Michael and Chris were talking to a potential investor but those talks had broken down, for various reasons, after a few days. A CVA (Company Voluntary Arrangement) wasn't the answer because of the contractual nature of the customer contracts - it wouldn't have worked.
There was no alternative but to cease trade and commence a CVL (Creditors' Voluntary Liquidation) process. Over the next few weeks we found out a lot more about how Michael and Chris had run the company;
- They didn't understand the nature of the business and the processes involved
- They didn't resolve customer issues
- They didn't ensure that the company telephone was answered
- They would disappear for days without explanation or notice
- They did not organise the workforce effectively
- They had no respect from the workforce
The list could go on. The point is that any business, to be successful, needs proper management from the directors. That invariably involves much hard work and much self-sacrifice. There's a high correlation between effort put in and success achieved. Nobody should go into business if they're not prepared to put in a massive commitment.
As far as this business was concerned we managed to find a purchaser for the assets and salvaged as much of the customer base as possible.
If you know anyone in business that would benefit from talking through a particular situation please feel free to pass on my number or contact me, Tim Corfield directly or a member of my team.
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You may also find our recent article on Personal Guarantees interesting reading.
Griffin and King have offices throughout the UK including Insolvency Practitioners Hereford, Bournemouth, Shrewsbury, Redditch, Stoke and Walsall.