Please help - advice needed with fathers business

[davie987]

Hi

I just found this forum via google and am in need of some advice.

Basically my father has a letting business that has been established for some time (25 years approx) and at one point was doing very well.

Anyway, I recently joined the business because I discovered (more by accident) that he was in serious financial debt - the business owing somewhere in the region of £100,000 and by my calculations, losing approximately £30,000 a year. I also believe he has pumped his own money into this clearly and has a lot of personal debt.

My father in truth is not very good with admin and his accountant for some reason thinks hes making circa £60,000 a year which seems totally radiculous to me and has landed him with a £12,000 tax bill.

Hes a sole trader and loans/debts of his own seem to be draining the business of £70,000 a year.

Now I have been working 80-90 hour weeks for the last 3 months trying to get my head around everything - and looking at the figures, believe after all wages/costs it is possible to get the business making a profit of £150-200,000 P.A.. There are many many areas he has missed in terms of charges etc. and I do believe it can be highly profitable. He has a customer base of over 500 properties and 2 offices (both leased).

Also, he has been paying well over the odds for many things (i.e. £20,000 for a photocopier over 5 years, crazy insurance premiums that i have cut to approximately 30% of the original costs etc.) which I have tried to reduce.

The problem is....I dont know what to do for the interim. He will no doubt have creditors chasing him and I think £60-80,000 will be due to be paid within the next 1-2 months. In this climate, I really dont know how feasible it is to get a business loan. The accounts show a profit of £60,000 after costs (as I said, I think these are severely warped due to several factors) and I have realistic forecasts showing how I plan to make the extra income. I have managed to raise approximately £15,000 over the last month on top...however this has gone straight out again for existing debts. I just need a way to keep the business afloat for the next 3 months and then I think I can get it back to scratch within 6 months.

He owns a house but im presuming that he has little equity in this (perhaps £100,000) due to the extent of the problem. I think in truth, this has gone on for sometime and he has burried his head in the sand/hasnt realised the full situation.

Any advice would be greatly appreciated....im very worried because if the business collapses he will lose everything and I think it would have devastating consequences to my parents.

Many thanks

 

[fathippy]

Rather than borrow more money to pay the creditors, why not present directly to the creditors and agree a schedule of payments. They should be keen to make sure they receive the debts albeit over a longer time frame rather than see the business go under and receive nothing. If any of the creditors are from HMRC then they are almost "obliged" to allow this at this point in time.

By the way, if the accounts were truly wrong, surely you can file amended accounts and attempt to either reduce any outstanding tax bills or even get them refunded.

 

[Calibre Designs]

Really sorry to hear about the situation and from the sounds of it, I am glad that you have stepped in to take charge. A successful business means looking at everything down to the letter. Sadly many business owners brush off things they do not like - too easily and it'll only come back later to bite them.

I'll speak to Gillie on here. She can advice on financial matters...

Hope you can turn the business round.

We are here to help if you need marketing designs.

 

[Gillie]

If you would like to sit and chat through your options give me a shout and there might just be a way round this. Hard to give the definitive without asking lots of questions though!

 

[adam]

Good advice so far. You have discovered the failings and can see a way to make it work. Creditors at the moment stand to get nothing, this way they stand to get something.

Talking to them has to be the first step and then keep working on these cost savings.

 

[cjd]

Letting businesses are not capital intensive (assuming he hasn't bought property himself), outgoings I assume are mainly wages and office rental. I'm therefore struggling to see how a debt of £100,000 could have developed. Who are the credotors and what is it for?

Something's not adding up here - your first port of call would be the accountants who presumably have doing his books for 25 years?

They should be able to tell you what is going on.

 

[DickM]

Letting businesses are not capital intensive (assuming he hasn't bought property himself), outgoings I assume are mainly wages and office rental. I'm therefore struggling to see how a debt of £100,000 could have developed. Who are the credotors and what is it for?

Something's not adding up here - your first port of call would be the accountants who presumably have doing his books for 25 years?

They should be able to tell you what is going on.

The second port of call should be your local bookies, to check they weren't your fathers "alternative" bank.

 

[davie987]

Hi

Well basically I feel the debt has gradually been built up - due to a combination of:

1. erractic payment dates setup for landlords/tenants - due to the number of payments and the way it was previously logged, it was very difficult to check. Also, some tenants have realised the flaws and have gradually delayed payment dates - i.e. have changed date each month by 2/3 days - and have gradually lost a month! so he will have paid a landlord for 12 months when hes only had 11 in. I found 1 case where he has been paying a landlord for 18 months with no payment from the tenant (we look after an entire block - and he was getting 1 payment in which he thought was for another flat)! that tenant has now been made bankrupt and he has paid £9000 out! It really is that bad......and as a result, this rent account appears to of gradually been drained by £40,000. I personally think this has gone on like this for several years and he has gradually been feeding it with his savings/house equity.

Also, he has overdrafts that are nearly at their limit equating to about £30,000 and some unpaid contractors for about £10,000 - I am leaving a margin of error of £20,000 because we are still finding problems - so thats how I make up the £100,000. If anything including his card repayments and personal loans etc. I think its closer to £200,000-250,000 - however this can be controlled in the long run I think.

2. He has not charged anything like what he should have - so for instants with many landlords not paying any type of setup fee, fees for new tenants, renewed agreements etc. and likewise for Tenants. If anything hes been losing money per deal. I have been trying to get him out of the mentality of 'mates rates' and special prices...because at the end of the day he can get the results so doesnt need to undercut himself....and those who are not prepared to pay, I would personally rather lose as generally they are more hassle (80 of our landlords for FULL MANAGEMENT hes charging 0-5%! av rent being £650). I dont see how I can realistically increase these management fees as of yet because I dont think their really getting decent service.

3. Staff wages were coming to about £260,000 a year - I have changed the structure round and they are now in the region of £200,000 - however everyone has a set role. A close friend who I confided in has quit his job as a regional manager for a company to help me iron out the flaws and to be fair hes doing an amazing job. Ive agreed a payout bonus for him once we get this void back so that we dont have excessive amounts of cash going out at this critical stage.

In the last 6 weeks my friend and I have made quite a number of changes. A few of these being:

1. We have made a proper budget up outlining all expenses and a realistic income having backtracked 2 years of accounts - and we believe we can make £150,000-200,000 a year after everything with some effort

2. We have come up with several revenue generators (all small margin, i.e. renegotiating rates with contractors to incorporate a margin for our business - where we formerly had none, an energy company who pay us £13 for every new tenant we sign them up - and they take all the admin away (so saving 20 hours a week in admin staff), £40 referal fee for an insurance company per tenant/landlord policy, £5 an hour increase for our cleaning services to £15, etc. all these little things add up! ) and now have someone in dedicated to going back through all of the files to see where we can make some instant profit - i.e. 90% of the existing tenancy agreements are out of date and if done properly, this could raise £25-30000 very quickly.

3. We have taken control of the accounts and have set a date up to pay the majority of our Landlords - we have also opened 2 further accounts to properly sort out the money every month - i.e. deducting fees and transferring rent to be paid out on this set day. This we are doing 2/3 times a day and things are getting clearer. Also, work carried out was not logged properly so therefore not recharged so we are going through the last year to ensure this has been done. Related to this we are logging the dates paid and are enforcing charges that are already in their tenancy agreements.

4. We have debtors owing rent in the region of £29,000 - the majority of this wont have been paid to the landlord, but my guess is £10,000 has been. The debt collector used in the past has been crap recently so we have knocked him on the head and are now doing this in-house - a family member is a solicitor so we are ensuring everything is done legally and saving the 5% of the debt fee. This week alone we have recovered £5,000.

I am really optimistic about the changes - Im just nervous about this initial void. Im only in my early 20's so dont have a lot of experience in this area obviously! At the end of the day the last thing I want to do is make a critical error in my fathers business and have that on my shoulders!!

Basically, I think the problem is that my Dad isnt particularly money focused....he would be better off just dealing with the customers/clients (which he loves) and all of the day to day running of the business done by someone else. There definitely isnt anything in terms of a gambling addiction etc! hes not the type....and I havent noticed a new ferrari on the drive either! lol

Thank you for all of your kind support and advice so far - its really appreciated as its quite a burden for me to deal with - but hopefully things will ease!

 

[nasirs]

I think the best would be having a detailed chat with an accountant, see if he could re-do al the accounts (if you think they are wrong) and then see where the business is standing. If you see that this yeasr £12,000 bill is wrong then several years before bill could also be wrong. You might be thinking that it might cost you extra then have a chat with the accountant, offer them minimum amount you could afford and a percentage of tax savings. (There are alot of experienced accountants here, if they do not accept this payment plan then I am happy to discuss this. PS we are based in London)

Also if you will have an accountant then they will be able to help you re-drafting the business for the future.

You could negotiote the debts with the creditors and depends what kind of creditors you have as it will be difficult to deal with them all seperately. One might accept two might not.

You mentioned that your Father has some equity, if he could personal guarantee it then you could surely get a loan, pay all the debts and pay the bank alone monthly and I believe the current market situation is quite good to take on debt assuming the current business is good(interest rates are low but bear in mind that you will have enough business to keep up with payments)

 

[DirCosec]

I have looked at this and see it would be interesting to go back to basics and establish exactly what is the purpose of the business, where the income is supposed to come from and how much is coming in, and then establish the costs so in effect setting up a proper Income and Expenditure account. Then I think you can start to establish where you may be able to start to save the business. Doing this in conjunction with the Accountant will help.

 

Please give me a call to discuss this matter on freephone 08004969594, i work for a company called Tenable Solutions, we help companies who are struggling financially and find the best solution for the individual. We offer a FREE consultation at a place and time convenient for you, held in the strictest of confidence and of course without obligation.

As i am a new user i cannot add the website address but just type in TENABLE SOLUTIONS and our website will come up x

Hope this helps xx

 

[S Thatcher]

Hello Davie, sorry to hear that your father has problems. It is great that you are now getting involved, that will at least stabilise matters. I have a debt solutions business, and as a qualified solicitor with 17 years experience in helping businesses and individuals in financial trouble I am well placed to help. I have been able to help others from this site. I'm sure that I will be able to help you also.
Call me on 0116 2171406 and look at helpwithdebtuk.com as well.

 

[davie987]

Hi everyone

thanks for your kind comments!

Well things seem to be looking up - over the last 2.5-3 months my friend and I have managed to claw back about £85,000 from various sources - i.e. charges not implemented, new fees, new business, overpayments - we are still by estimate £40,000 short however its a really good step forward to the goal and means we only owe creditors about £10,000 as apposed to close to £100,000 in feb! the remaining £30,000 is in business overdrafts. I am hoping that by the end of this month we have cleared that £10,000 and we can then tackle these...which isnt quite as scary in my eyes as its 'authorised debt'.

We are now making somewhere in the region of £37-45,000 per month instead of about £14,000 before wages and costs which im really pleased about.

The next task is to clear down my dads personal borrowing but I think with some work and perseverence this can be done in about a year all being well - but only time will tell!

Im now considering what we do with the business long-term....presently im thinking get all the accounts level and show 3 years of consistant trading then sell - but the other part of me thinks hold onto it and run/expand...one step at a time I guess! I really do think its a strong business but my dad just hasnt organised the fees/admin well enough and just got totally muddled.

 

[DickM]

I am really pleased for you .................... a great text book example of keeping a cool head in a daunting situation - and I'm sure everyone on UKBF will appreciate your feedback, as most (not consciously ) take the advice/support and run.
Well Done!

 

[GreatSEO]

Congrats on what looks like a job well done

Regards

Dave

 

[Moneyman]

Right. time to get real with your dad. proper partnership etc. it is amazing how quickly people forget all the hard work etc. they can even learn to resent you for it. maybe he would like to take a back seat and keep say 30% while gardening.
what you have done sounds briliant. if you ever need a job i could do with an army of guys like you.