My 9 year old business is at a crossroads - Urgent advice needed

[HeadTurtle]

Apologies if I waffle on too much here - I'll try to keep it concise. I shall summarise the main points at the end of the post.
I'm just at a point where I need to make a call and follow through. Any input, positive or negative, would be so greatly appreciated. Thank you.

The full story

I started my limited company in 2016 (online gift shop - mainly selling on Etsy) - It doubled in size every year up until 2020 so I made some financial decisions based off where I thought we would be, and the capacity we would need for fulfilling more orders the following year. 2021 saw no doubling, and turnover remained around 2020 level, then 2022 onwards we just started plummeting. Poor financial decisions made, and not corrected quickly enough. My fault entirely.

I'm at the point now where we make around £3k gross profit per month (which is slowly increasing). Our outgoings (rent, bills, loan repayments etc) are around £1,500pm, payroll for my wife (my only other employee) around £1,100pm, leaving around £400.

Here's the issue - I've bailed the business out a few times now with my personal funds (return of dividend payments mostly, so not owed by the company) and managed to get myself in personal debt, to the tune of around £45k. I obviously can't pay myself enough to cover debt repayments and my own bills (around £4k per month all in).

The business also has around £5k-£6k of debts due in the coming weeks, which I don't have the funds for.

The business can operate without me, though it would not grow, and would slowly decline month on month. I wanted to get other opinions on what other business owners would do in this situation, as I keep second guessing my own decisions.

• Option 1: Do I liquidate the business due to insolvency?
• Option 2: Do I sell assets and excess stock to pay the bills, then keep the business going without me?
• Option 3: Is there a third option?!

I'm good at what I do (the production side - Obviously not the business side so much, though I'm trying to learn faster!)

I have many many options and ideas on how to branch out and either grow the business, or start a new one - But this has led to decision paralysis.

I hate the idea of walking away from the company I've spent so much time trying to build and rebuild.

Full time employment - Working for someone else again after 9 years being my own boss - Doesn't appeal at all (though I've started applying for work quite aggressively!) - But this will unlikely pay enough to cover all of my bills, and I'm not sure how transferable my skills are?!

I've reached the point where I don't want to take on any more debt - Where I need guaranteed income. I'm not desperate just yet, but there will come a time in the near future where I could lose my house - And I can't let that happen, as I have a wife and young children to think about.

To summarise the situation (without the fluff);

• Est 2016
• Turnover doubled each year to 2020
• Expanded operation to cope with expected demand
• Turnover remained the same in 2021 - Outgoings were a lot higher
• Turnover declined in 2022 onwards - Outgoings still too high: Took too long to correct
• £5k-£6k due in coming weeks (we can't currently pay)
• Gross profit currently around £3k per month
• Bills and payroll around £2,600 per month
• Above does not account for me being paid
• I'm now around £45k in personal debt (due to bailing out the company).
• I personally need to be taking home around £4,000pm to avoid further debt.

 

[ChrisCallaghan]

Hi @HeadTurtle ,

Thank you for sharing your situation. It sounds like you're coming to a crossroads on where to go with your business.

Ultimately only you can decide if continuing is something worth doing. If the company does not have the funds to provide you with a living wage, plus is struggling to honour its financial commitments, then now may be the time to considering moving on before the situation worsens.

Aside from....

£5k-£6k due in coming weeks (we can't currently pay)

... what other debts is the company currently responsible for?

Option 2: Do I sell assets and excess stock to pay the bills, then keep the business going without me?

Who would run the business if you were to depart? Are there staff who would be interested in taking on the business and buying your shares?

Option 1: Do I liquidate the business due to insolvency?

Option 3: Is there a third option?!

I feel these both come into the same category - if you would like to explore how to move on from the company, you may find it beneficial to have a consultation with an insolvency practice about ALL the options available, not just a liquidation.

Most insolvency advisors (myself and the other insolvency regulars here on UKBF included) will offer a free no obligation consultation to explore the options available. This would not mean committing yourself to an insolvency procedure, but will aid in considering how to move forward.

I'm sure other UKBF members will be along shortly to share their thoughts on your situation.

 

[Lisa Thomas]

Definitely time to take advice from an insolvency practitioner to explore options: for example liquidation (two procedures), CVA, or administration (two procedures).

These are too complicated to explain in a message but I have summarised them in more detail here: https://youtu.be/01lTdazWwTk?si=RVrimqULSNrD3vMD

Happy to speak to you if you would like an initial free, confidential, no-obligation call.

 

[HeadTurtle]

Thank you for the reply @ChrisCallaghan - My wife is an employee of the company, so if I shut it down, she loses here monthly wage too (which would mean even more money I'd need to find each month as she doesn't have much flexibility around childcare for finding a new job).

Insolvency liquidation is a viable option, but I'm trying to see if there is an alternative option, as the business is still profitable without me in it. I am the drain...!

 

[ChrisCallaghan]

Could she run the business on her own without your regular support? Would taking the option of you leaving as an employee mean that you would still have to personally support the company financially?

 

[ChrisCallaghan]

Would taking the option of you leaving as an employee mean that you would still have to personally support the company financially?

Specifically the "£5k-£6k due in coming weeks" ?

 

[HeadTurtle]

Yes, she can run the business on a limited basis (production etc.) but I don't think she could grow the business, and it would slowly decline again.

The incoming bills (VAT due next week being one of these), I can probably cover by selling excess stock and equipment. So I should be able to get it back on level ground, and can also move out of my office and my wife can run it from home (though a lot more limited due to space) - That would save around £850 per month. We are due to renew the lease, but not signed paperwork yet.

I did consider a hybrid approach - Go back into working for someone else and just draw what was left of the profits... Whilst still trying to grow it back. But I dunno - I wonder if I'm just being stubborn! I've been trying to recover things for three years now. I've made some progress but still a long way from where it needs to be.

 

[Lisa Thomas]

Yes, she can run the business on a limited basis (production etc.) but I don't think she could grow the business, and it would slowly decline again.

The incoming bills (VAT due next week being one of these), I can probably cover by selling excess stock and equipment. So I should be able to get it back on level ground, and can also move out of my office and my wife can run it from home (though a lot more limited due to space) - That would save around £850 per month. We are due to renew the lease, but not signed paperwork yet.

I did consider a hybrid approach - Go back into working for someone else and just draw what was left of the profits... Whilst still trying to grow it back. But I dunno - I wonder if I'm just being stubborn! I've been trying to recover things for three years now. I've made some progress but still a long way from where it needs to be.

Be careful in signing up the company to a contingent liability (lease renewal) at a time when it's insolvent.

 

[HeadTurtle]

Be careful in signing up the company to a contingent liability (lease renewal) at a time when it's insolvent.

I've been putting off signing anything for this very reason. I'm guessing it could cause issues if I go down the liquidation route?

 

[Lisa Thomas]

I've been putting off signing anything for this very reason. I'm guessing it could cause issues if I go down the liquidation route?

Yes, possibly because you have a director's duty to mitigate the position and ensure it doesn't get worse, hence you're best placed to take insolvency advice.

 

[Elliot Green]

Happy to have a chat about your situation. My details are below.

 

[Gyumri]

I'm now around £45k in personal debt (due to bailing out the company).

In the situation you describe you are trying to keep afloat a sinking ship and it is clear that it's time to cease trading and move in to something more productive.

It might be closing the company by appointing a liquidator if creditors are pressing for payments; or doing nothing and allowing the company to remain dormant while you begin something new.

Either way I think you are obliged to stop trading asap as a particular Ltd if the company is incurring debts with suppliers that it won't be able to repay.

 

[ethical PR]

Thank you for the reply @ChrisCallaghan - My wife is an employee of the company, so if I shut it down, she loses here monthly wage too (which would mean even more money I'd need to find each month as she doesn't have much flexibility around childcare for finding a new job).

Insolvency liquidation is a viable option, but I'm trying to see if there is an alternative option, as the business is still profitable without me in it. I am the drain...!

She could find work she can do from home such as customer services roles (really depends on her skill set and experience

 

[Paul Kelly ICHYB]

Have you taken any separate business advice/support?

If you could reduce your costs by 50% would it work?
Could the business operate without the member of staff?

Bottom line is can the business grow? If you can see light at the end of the tunnel (and it isn't the 4.45 from Glasgow), taking harsh steps now may allow you to trade through the issues.

 

[HeadTurtle]

If you could reduce your costs by 50% would it work?

This is literally the avenue I've been thinking down since posting this. I can reduce bills down to around £700 from £1,500 per month, carry on employing my wife (who would then run the day to day) and should be able to improve gross profit within a couple of months and be able to pay myself around £2k per month too. Just need to get those bills paid first - To be clear, these aren't overdue or being chased, I just don't have the funds to pay for them and they will soon be due.

All other responses are genuinely appreciated, thank you - Maybe I'm just burying my head in the sand here, being stubborn, or just plain stupid... but I think there is still a route outside of shutting down the business.

Sell excess stock and equipment.
Pay the incoming bills.
Cut right down on costs.
Only draw a salary the company can afford.
All whilst continuing to try growing it again, and maybe starting a second company to bring in money from elsewhere - Whilst also seeking a temporary job (that's my least favourite part of the plan!)

This last bit was more for my own clarity - But you've all helped get me there, so thank you.

@ChrisCallaghan and @Lisa Thomas - I will keep your details should it get to the point where I feel it can't be recovered, and appreciate the advice you've given. Thank you.

 

[ChrisCallaghan]

I hope everything goes well with your strategy. Happy to be of help if you need in the future.

 

[stcope]

Sorry to hear your situation @HeadTurtle as I find myself in a very similar situation. For me, my business doubled during covid, I made decisions based on what seemed like a pattern of sales doubling, then sales started to decline leaving me in a bit of a mess.

At the peak I was employing 9 staff and I have a warehouse to pay for but unfortunately have had to let everyone go. My only way of getting rid of the warehouse seems to be the insolvency route because we're still half way through a 10 year lease.