Huge trading loss - how is this viable?? HELP!

[ftm42]

We have recently received our [unofficial] accounts for end of last year. It shows a loss of £38K on a turnover of £71K. Given that this is based on figures supplied in desparation, as our 'finance director' hadn't submitted on time [another Director ended up unceremoniously dumping all the paperwork they could find at our accountants for them to sift through], how on earth do we get out of this?

I have reviewed our order books - we know that we have done far worse in the last 12 months [i.e. up to date] - the accountant was working on half a year's figures and had to predict the other half [not knowing that the missing half turns out to be about 60% of the half year he has].

My feeling is to call time and pay off what we can negotiate with the bank and creditors, but the other Directors seem to think we can continue, by splitting the loss between our other businesses [thus compromising the other businesses], or just waiting until the economy improves [and personally risking bankruptcy in the meantime] and parking the debt.

We don't hold stock as everything is done to order. The only stock we have is about £500 worth which we use in a shop display and a further £1000 [estimated] consisting of remaining samples from old ranges, plus display equipment.

Any advice would be welcome! As a total non-accountant, I don't understand how we can get out of this without dire consequences and I don't see how we can continue as a limited company. Personally, I would be happy to continue with me as a sole trader basis [it was originally intended to be a 'cottage' industry anyway but I have been continually over-ruled or have agreed to things under duress and against my own judgement, for reasons i can't go into - I am already kicking myself for allowing this to happen] and drop the limited company, but don't know if this is even possible. We have no money to advertise, move into new shops, make up stock for new ranges, etc.

Help!

 

[The Byre]

Nobody can give you a meaningful reply without knowing a great deal more.

We could start with what product/services are you selling?
How many owners are there and what are the shares and who does what?
How long have you been in business?

This is one of those situations where somebody who knows what they are doing sits down with the directors and tries to make sense of all the mess and finds a way out.

 

[teddys]

38k loss on a turnover of 71k! How have you been funding this loss? You must have been feeling the cash squeeze from the start then?

 

[Alan R Price]

First things first: you need to know the financial position of the company. Draw up a list of assets (including money owed to the company) and liabilities (including taxes, bank loans, directors' loans etc.). This will tell you whether there are sufficient assets to cover the debts and if not, the size of the "black hole".

Next, prepare a monthly profit and loss forecast for the next year, based on past performance, your knowledge of anything that has changed within the business, and your expectations for the next year. Then prepare a monthly cash-flow forecast for the next year. This will show you how much cash you are going to need and what will be available to deal with the debts the company has run up.

If the figures show that the company cannot generate enough profit and more importantly, cash, to deal with its debts, you should seriously consider ceasing trading to avoid running up liabilities it will not be able to meet. Continuing trading in such circumstances could expose the directors to personal financial risk if the company were to go into liquidation. I recommend taking advice from an insolvency practitioner if it looks as though there is no way for the company to recover. Your accountant should be able to recommend one. A good IP will give you an hour or so of free advice with no obligation.

 

[ftm42]

Only assets amount to around £3K; sales now are virtually zero; with not much prospect of more. 4 shareholders, 3 Directors.

One shareholder is likely to take us to court once she finds out how bad things are.

As Directors, only one of us [me] is directly involved on a daily basis. Other Directors are responsible for accounts/finance. I have never been allowed access to the bank account, despite repeated requests. There's no money in the bank as we're overdrawn on our huge overdraft, so what would I spend anyway?!

 

[ftm42]

in terms of loss, things started going bad over 12 months ago, but my worries were ignored. We've only been going two years, so how we can expect to turna around such a huge loss already generated, I fail to see.

The other Directors refuse to cease trading as even that will cost us [apparently more than we have, though our accountant says there are ways round having to pay everything - it's called negotiation!]. One creditor has already got angry and we have had to pay him off through personal finances [again, and against my better judgement].

Additional complication is that one of the other Directors is my husband, who is the one who drove us into this mess in the first place, though I'm not blameless - i simply accepted their view that I didn't understand commercials and was so naive that they'd better make the decisions for me!

 

[DavidAshdown]

A lot doesn't add up here, or at very least, doesn't make a lot of sense.

4 shareholders, 3 directors, a turnover of £71k and a loss of £38k. Too many chefs and nowhere near enough income to feed so many mouths.

What business are you in ? Why are sales so low, what are the overheads?

You say you have no access to the bank account but you are heavily overdrawn ? How do you know this ?

Stock is £500, assets are £3k. Very small amounts, why conflicting and how can you achieve sales with no stock?

What is the accountant doing? What does he/she suggest?

Lots of questions. Can you give more information?

 

[arcon5]

On what basis would the 4th shareholder take you to court? Assuming by 'you' you mean you as an individual and not the company?
Investing in a company by its very nature involves risks. You could only be potentially held personally liable if there has been any misconduct such as trading whilst insolvent without a realistic view of trading through.

Although gotta ask why is the massive loss surprising? If one of the directors was the finance officer then why wasn't management accounts produced and profitability analysed periodically?
Was any dividends drawn?

 

[Alan R Price]

in terms of loss, things started going bad over 12 months ago, but my worries were ignored. We've only been going two years, so how we can expect to turna around such a huge loss already generated, I fail to see.

The other Directors refuse to cease trading as even that will cost us [apparently more than we have, though our accountant says there are ways round having to pay everything - it's called negotiation!]. One creditor has already got angry and we have had to pay him off through personal finances [again, and against my better judgement].

Additional complication is that one of the other Directors is my husband, who is the one who drove us into this mess in the first place, though I'm not blameless - i simply accepted their view that I didn't understand commercials and was so naive that they'd better make the decisions for me!

You are not currently liable for the company's debts so don't use your own money to pay them. I cannot see why you think the shareholder could sue you.

Resign as a director. You don't have to say why. You cannot allow yourself to be a director of a company where you are denied access to records etc. and are ignored by the other directors. You would be leaving yourself open to all sorts of personal liability.

 

[DavidAshdown]

I agree with arcon, why would a shareholder want to sue you ?

 

[Caspar]

Go onto Companies House website and complete a form now, to resign as Director. This may cause you problems with your husband - but your husband has caused problems for you, Send the form in asap before the others know anything - this is what I would do if it were me. You can still be on the side lines later to offer advice to your husband.

 

[ftm42]

More questions than answers really - no stock as we do personalised goods so all orders are done and sent directly to customers. Our only stock is what we have on display in our one retail outlet - who take a 50% cut of profits on each order they take [no, I didn't negotiate that either] and some display equipment for the occasional craft fayre [which we no longer do as we never made >than the table fee!].

Historically, this was meant to be my home business and publicised via social media / friends, but hubby decided to turn it into a big limited company thing. We did 14 months in a retail centre which generated lots of business, but not enough to pay the rent so we left with monies outstanding, [alarms bells already ringing] including extending our stay there - working 7 days a week, all hours that the centre was open and with only Xmas Day off. Not fun with 3 children all at school.

 

[ftm42]

Incidentally, I did intend to resign and had emailed the accountant with my intentions, but hubby veto'd it, saying I should wait until the accounts were done [still waiting, 6 months later].

 

[Homer J Simpson]

Who are the other two directors? friends or investors/shareholders?
who are the shareholders? you, your husband, the other directors, external investors etc?

Who has been making most of these decisions? was it your husband or have the other two directors been involved much?

Has anyone drawn a salary?

To be honest, it sounds like you need to resign as a director. BUT if there is a chance you can turn the business around you've essentially got 'losses' to use before you start paying corporation tax, so may possibly be worth trading through to benefit from this. But that is only if the business is viable, and you start getting treated like a real director.

I'd be looking to remove the other two directors and possibly even your husband if you need to to make it work. Although that's a lot easier said than done!

 

[Fred_the_frog]

What happened between the '£71k turnover' and 'sales being virtually zero now'?

Surely this would set alarm bells ringing- you were doing ok sales wise last year then everyone suddenly stopped buying from you?

 

[ftm42]

Fred...

We spent 14 months working our ar@es off in a retail centre [lots of passing trade] and ended up leaving there heavily in debt as the rent was extortionate. Was meant to be just 6 months, but hubby reckoned we needed to continue to make up the loss we'd made in the first 6 months, rather than leave in debt [again, against my opinion, which was to cut n run], but we just ended up slogging for every penny and being even more out of pocket.

Now we have only one outlet, in a craft shop which sells everything and we are just a small display in a large shop, so we aren't in the public eye any more. We have no £ for more display stock so can't afford to move anywhere else to get more exposure. We have a website, but can't afford to publicise it...

All adds up to my having totally lost faith in the business and sadly in hubby as I feel I've been led by the nose and wasn't strong enough in my objections [or got shouted down when I expressed my doubts, by the 2 other Directors. So frustrating that all has to be done on majority decisions and they've spoiled my business.

I can't resign, as I am married to another director, and it doesn't let me off the hook anyway as I'd still have to pay my / our share of the debts.

 

[StevensOnln1]

Did you give personal guarantees to any suppliers, bank etc? If not, there is no reason why you should pay company debts using personal funds.

Sent from my GT-P1000 using UK Business Forums

 

[arcon5]

Hindsight is a wonderful thing, don't beat yourself up over it.

Lets be clear about one thing, you are
not the company. The company is a separate legal entity. You are not liable for the companies debts (unless you personally guaranteed them) in the same ways its not liable for your debts.
This includes any monies that may be owed to shareholders.
A court can make you liable but that's not happened here and unlikely to happen!!!'

So remember that before throwing personal funds in to the mix and jeopardising your family's financial security.

 

[Paul_Rosser]

Incidentally, I did intend to resign and had emailed the accountant with my intentions, but hubby veto'd it, saying I should wait until the accounts were done [still waiting, 6 months later].

If you resigned in writing to the company and worked any notice period required then thats all you had to do.

As others have already said you should resign straight away and provided none of the company debts have your personal guarantee you are not liable for them, so walk away before it all blows up which it's looking very likely will be soon.

 

[nelioneil]

Looks like the parties of interest are trying to cover up their financial incompetence and possibly the excessive payment of dividends when trading as a loss.

 

[Alan R Price]

I can't resign, as I am married to another director, and it doesn't let me off the hook anyway as I'd still have to pay my / our share of the debts.

From a legal perspective, you can resign any time you like. All you have to do is file the necessary form at Companies House. Resignation will relieve you of any responsibility for the future actions of the company and its remaining directors.

You do not have to pay any of the company's debts unless you have given a personal guarantee. None of the directors has any liability to pay a "share" of the company's debts. That is how limited liability works.

If you do not have confidence in the other directors you should resign before it is too late. The longer you leave it, the greater the risk you take of a liquidator claiming against you if the company should go into liquidation.

 

[Caspar]

Looks like the parties of interest are trying to cover up their financial incompetence and possibly the excessive payment of dividends when trading as a loss.

You say that you don't have access to the bank account. Could I ask, are you a signatory of the account though?

If you are a signatory, you can walk into the bank with your passport and driving license for money laundering purposes, go to the information desk and mention you are not being given access and as a signatory you have a legal right, and want to see a print off of the last 6 months bank statements before you leave the bank today, and pay the £10 or so, asking for a longer period of copy statements to be sent to branch for you to pick up when ready.

You can also at this stage, with proof that you are a Director of the company, ask for the company bank account to be froze, so that no more payments can be made by anyone until your concerns have been resolved. However, this would also mean that no funds could be paid into the account either, until this was taken off again. Might cause a squabble from the others, but they would certainly stand up and take note that you have to sight the financial information to get an understanding what has been going on.

I agree with the above comment, that it does look as though illegal dividends have been taken or even funds syphoned off, to get into this state.

Please also look at what people here are saying - they can't all be wrong in telling you to resign as Director. But if you are a signatory to the bank account, I would go to the bank today and obtain as much information as you can before you step down.
Caspar

 

[nelioneil]

You say that you don't have access to the bank account. Could I ask, are you a signatory of the account though?

If you are a signatory, you can walk into the bank with your passport and driving license for money laundering purposes, go to the information desk and mention you are not being given access and as a signatory you have a legal right, and want to see a print off of the last 6 months bank statements before you leave the bank today, and pay the £10 or so, asking for a longer period of copy statements to be sent to branch for you to pick up when ready.

You can also at this stage, with proof that you are a Director of the company, ask for the company bank account to be froze, so that no more payments can be made by anyone until your concerns have been resolved. However, this would also mean that no funds could be paid into the account either, until this was taken off again. Might cause a squabble from the others, but they would certainly stand up and take note that you have to sight the financial information to get an understanding what has been going on.

I agree with the above comment, that it does look as though illegal dividends have been taken or even funds syphoned off, to get into this state.

Please also look at what people here are saying - they can't all be wrong in telling you to resign as Director. But if you are a signatory to the bank account, I would go to the bank today and obtain as much information as you can before you step down.
Caspar

Think you replying to the wrong poster, I did not start the thread! Though I do agree totally with your cpmments.

 

[ftm42]

Thanks to everyone who's advised on this. We have had several "professional tantrums" recently and whilst all seems bleak when you look at the books, the only way out is to try to turn things around. I am following up on several very promising leads, having changed our ranges, services, got rid of what wasn't working as much as poss and coming up with a fresh strategy.

Although the way ahead is going to be hard, I have to be optimistic and have pretty much taken over the day to day running of everything, so I know where things are going. Still got no access to bank account so as long as I can trust hubby to tell me the truth re finances, it shouldn't be a stopper. I can ask him for figures and hopefully he'll actually let me know from now on!

Cross fingers and ill keep you posted on how it goes over the next few months!

 

[MBE1]

Thanks to everyone who's advised on this. We have had several "professional tantrums" recently and whilst all seems bleak when you look at the books, the only way out is to try to turn things around. I am following up on several very promising leads, having changed our ranges, services, got rid of what wasn't working as much as poss and coming up with a fresh strategy.

Although the way ahead is going to be hard, I have to be optimistic and have pretty much taken over the day to day running of everything, so I know where things are going. Still got no access to bank account so as long as I can trust hubby to tell me the truth re finances, it shouldn't be a stopper. I can ask him for figures and hopefully he'll actually let me know from now on!

Cross fingers and ill keep you posted on how it goes over the next few months!

To truly run your business and know how it is doing, and where it is going, you MUST have access to the bank records.

I would want to know why your husband does not want you to have access before doing anything else, you should have full control if you are doing all the work, learn from your previous mistakes.

 

[ftm42]

You know what? I knew it was too good to be true. Hubby has just left on a business trip to Warsaw and left me with the info that our shop haven't paid us our invoices all summer. They take payment on our behalf, we invoice weekly and they are supposed to pay us on receipt, less their commission.

Their manager has been on sick leave since first week in August, so now, although they have been selling on our behalf, we haven't been paid since then! So that's 7 weeks without income from the shop and we're incurring further bank charges as we have had to pay bills, with no income from the shop to pay for it!

No prizes for guessing who does the invoicing! Last one I saw was dated 18th June!

Oh dear. I'm stupider than I thought.

 

[ftm42]

Ignore this post. Was trying to send private message but can't delete a post so editing text instead.

Earlier Post re invoices stands!

 

[MBE1]

Oh dear. I'm stupider than I thought.

Forget whether you are stupid, what matters is what you do now going forward. IF you had bank details etc you would have known this a couple of months ago, now you see why you need such information.

You also need to change your deal with the shop to allow for payments to be made if the same happens in future, most businesses die from lack of cash flow, even when they are profitable, you need to get paid.

I think you need to sit down with your fellow directors and totally overhaul your systems, reports, individual responsibilies etc.

 

[UK Contractor Accountant]

Only assets amount to around £3K; sales now are virtually zero; with not much prospect of more. 4 shareholders, 3 Directors.

One shareholder is likely to take us to court once she finds out how bad things are.

As Directors, only one of us [me] is directly involved on a daily basis. Other Directors are responsible for accounts/finance. I have never been allowed access to the bank account, despite repeated requests. There's no money in the bank as we're overdrawn on our huge overdraft, so what would I spend anyway?!

Have the directors personally guaranteed the bank borrowings?

 

[ftm42]

UK Contractor Accountant:

Unfortunately, the bank would only give us an overdraft if the 4 of us [as we were then] guaranteed the loan personally.

As Hubby and I are 1/3 shareholders, we would owe 1/3 of that.

Our 3rd shareholder could sue as she thinks I'm a bit crazy [due to a horrible email that I felt forced to send that went to the wrong person! I was furious at the time, but it was unprofessional of me to send the email] so could sue for my unprofessionalism.

Our 4th shareholder although she has put nothing at all into the business financially, could sue us for mis-management [obvious reasons] to get out of her third of the loan.

Not sure it could be any worse really!

 

[zoeneedshelp]

sorry this question might sound stupid but its bugging me and i don't want to ask my accountant.

in year 1 i made a £90k loss and now in year 2 i have made a £48k loss does that mean over the 2 years i have made a total loss of £138k or have i clawed back 42K of the 90k loss in year 1?

 

[ftm42]

zoeneedshelp

Now that's a good question, bearing in mind our revised figures for year end Sept 2012, finally submitted to Inland Rev, show a £44K loss! I'm no accountant, so an answer to that one might be relevant to me too, as we certainly haven't broken even this year either!

 

[fairdealworld]

sorry this question might sound stupid but its bugging me and i don't want to ask my accountant.

in year 1 i made a £90k loss and now in year 2 i have made a £48k loss does that mean over the 2 years i have made a total loss of £138k or have i clawed back 42K of the 90k loss in year 1?

Zoe I want to comment on the first sentence in your post. If you don't want to ask your accountant either you need a different accountant or you need to change your attitude towards accountants.

One reason you are paying your accountant is to answer all questions relating to your accounts, your financial position, the best way of financing things and so on. There is no question too simple for your accountant to answer and they are answering such simple questions all day every day. I've had the same accountant since I started running my shop 18 years ago. I'm still asking him very simple questions and he's still answering them - after all I'm paying him to do so!

It doesn't worry or embarrass me in the least to ask an accountant simple questions. If my accountant came into my shop and I said to him 'just do an attractive window display on the theme of x, y or z and make sure you don't put anything in it which will fade in the sun' he wouldn't know where to start. If a customer asked him, how do I prepare this large grain cous cous, or why is my crinkly silk scarf losing its crinkle and what can I do about it, he - by his own admission - wouldn't have the faintest idea. If I asked him to make a poster for the A board he'd discover he had an urgent appointment somewhere else. That doesn't mean he is stupid, in fact during the time I've been his client he's worked his way from working alone to owning an accountancy practice with several employees. We all have different areas of expertise. I can do a window display or a poster or advise customers on cooking this or suggest a suitable gift for someone I've never met. If my accountant says to me when in my shop 'do you think these earrings will suit my partner?' I don't laugh or think he is stupid, he's simply tapping my area of expertise and he doesn't laugh or think I'm stupid when I ask him simple questions about my accounts.

 

[Chris Smail]

Agreed fairdealwprld.

PS £138K probably, but are you picking up the right figures?

 

[ftm42]

Quick update, we had a directors meeting just before Xmas and agreed to cease trading on the grounds of insolvency. We had been financing things from personal monies for far too long. All directors agreed and we are now in the process of winding up. Thanks to everyone who has advised.
But also looking forward

 

[Paul_Rosser]

UK Contractor Accountant:

Unfortunately, the bank would only give us an overdraft if the 4 of us [as we were then] guaranteed the loan personally.

As Hubby and I are 1/3 shareholders, we would owe 1/3 of that.

Thats not usually how banks work as normally each of the guarantors is liable for the entire debt, so if one of them goes bankrupt the bank can go after the others for the entire amount.

Our 3rd shareholder could sue as she thinks I'm a bit crazy [due to a horrible email that I felt forced to send that went to the wrong person! I was furious at the time, but it was unprofessional of me to send the email] so could sue for my unprofessionalism.

You can't sue someone for being unprofessional, if you could we would need the courts to run 24/7!!

 

[The Byre]

I have just read key parts of this whole thread to my wife, who laughed out loud at some parts - in sheer disbelief!

1. Hobbies do not make good businesses.

2. Fixed costs can kill!

3. The three Fs should never invest - friend, family and other fools.

4. If you are in a hole, stop digging!

 

[ftm42]

Byre! I can understand the amusement - over the last 2 years, if I hadn't laughed I'd've wept buckets! As it is I did both in roughly equal quantities!!

1. Hobbies do not make good businesses. EVEN IF THEY ARE SOMEONE ELSE'S HOBBY!

2. Fixed costs can kill! YUP - ESP IF YOU'RE PAYING THEM FROM PERSONAL CASH!

3. The three Fs should never invest - friend, family and other fools. YUP, YUP AND YUP!

4. If you are in a hole, stop digging! - I HAVE, THANK GOODNESS! - NOW JUST NEED TO FILL IN THE HOLE BEFORE SOMEONE NOTICES THERE'S A GRAVE THERE!

Happy New Year! Lets look forward now to learning those lessons and reinventing myself for 2014!!

 

[The Byre]

Lets look forward now to learning those lessons and reinventing myself for 2014!!

Well, you sound like a lovely person and all I can say is best of luck going forward. PM me if you ever need to get the opinion of a wise old git who's been through the mill!

 

[ftm42]

Aw FFS!! Just when you think you've drawn a line under it - 'last steps' include contacting the ex-director who's still a shareholder to tell her that we've ceased trading, she owes £X amount and would she pay up please.

As always, hubby [one of the other directors] hasn't worked out the final figure yet [still....]!

He is totally hopeless at just getting things dealt with, so my question now is - do we just ask her for her 34% of the overdraft we are all liable for, or do we need to finalise a figure that includes any charges incurred between when we ceased trading and when the account is closed [given that we are now at risk of extra penalties due to going over our overdraft - currently we haven't incurred any extra but the longer this goes on, the more risky it gets]. We just can't seem to finalise what to ask her for and I am fed up of waiting!