SME Building Company - money trouble.

[Bay]

Hi,

I'm sole director of a small building company. We offer a specialist service delivering high-end residential home additions and have completed some new-builds. I am from a trade background and have self-taught the commercial aspect of the business with some help from personal contacts who are construction professionals.

I am nearing the end of my third year of trading and have a growing customer / architect client base. We are doing some really great work which is being well responded to.

I have recently hit some financial problems and Im looking for some advise from anyone who has experience in this sector (or any relevant) to help make sensible decisions moving forward.

Our annual turnover last year was around £500000 and will be similar this year. I have never made considerable profits but manage to grow the business / support the family. I have slipped into an insolvent position of around £20,000, as indicated by my accountant although my cash flow position feels worse (I have had to set up terms for last VAT quarter) . I have a 20k OD which Im in-and-out-of and am looking to extend. The company doesn’t have considerable assets.

I believe this is predominantly down to a large contract we are undertaking (£250K+) which I have underpriced. It's a stand-out job I was hoping would be the making of the company. We are two thirds of the way through and money-aside is going well. There are obviously problems I need to address in general to reach healthy profitably. I put this mostly down to a lack of bargaining power as a young business. Also in selling our work for the correct price and my lack of experience in estimating (it seems the better I am at estimating the higher our price and the more work I loose).

I'm experiencing very high levels of stress and anxiety and wondering at what point I should accept a failed project? I have dependents and feel I need to ‘tread carefully’. I have never received any investment or put any of my own money in having built-up from being a sole trader.

I have a good skilled workforce, good branding / website with ever improving portfolio. I do think the company is worth fighting for but I don’t have my head in the clouds as to its value.

Should I relax and see this as a dip in the road. Perhaps look at lending options etc or should I accept that something isn't working and move on?

I realise there’s allot of factors in understanding my position and offering accurate guidance. however I feel I would greatly benefit in receiving advice from others that can help put my position in perspective. Im highly skilled on the tools and a fast learner of them, however certainly ‘green’ to the business side of things.


Many thanks in advance,

 

[The Byre]

Talk to @Mark T Jones, @tony84, @Gordon - Commercial Finance or @Keith Ahmed all spinsters of this parish (i.e. formum members) and specialists in business loans.

 

[Gordon - Commercial Finance]

Thanks @The Byre - although I read this post and thought the question was about something other than business loans!
Been going more than 2 years, so there would be options to get a loan, but its hard to tell from the detail above if that's really the right thing to do...

 

[HomeWrking]

My husband just heard me read this thread aloud and wants to speak to you. He helped as marketing consultant build a similar business in Wandsworth which had crazy growth but similarly crazy exposure to debt. He was marketing for them but they underestimated his advice and counsel due to his background as IFA, and business management. At the time the phone was ringing and pinging but the business was not necessary being engineered for profit and a few clouds on horizon. You need general business management advice - PM me if interested to speak by phone or Skype.

 

[Mr D]

Slipping into an insolvent position - time to get professional advice from an insolvency practitioner.
It may be that there are multiple options that can be looked at.

 

[Lisa Thomas]

You should take advice from an Insolvency Practitioner whilst exploring other options, such as funding.

 

[The Byre]

I believe this is predominantly down to a large contract we are undertaking (£250K+) which I have underpriced. It's a stand-out job I was hoping would be the making of the company. We are two thirds of the way through and money-aside is going well. There are obviously problems I need to address in general to reach healthy profitably. I put this mostly down to a lack of bargaining power as a young business.

The last time I commissioned a build, I did a "You build a bit, I pay a bit; you build another bit and I pay another bit."

Every month or so, the builder presented an invoice that listed the work done so far and we handed him a cheque. We knew that he had cash-flow (Cash Floe - Gadd, how I loved that woman!) problems and it is ridiculous to expect a small company to stomp-up huge sums, so it seemed only fair.

 

[Mark T Jones]

It is worth speaking with @Gordon - Commercial Finance about potential loans; however I must re-stress the absolute need for a full (slightly negative) cashflow P *& L projection to be sure that you aren't just throwing money into a black hole.

At risk of being negative, pretty much every business that goes bust believes all they need is funding for another 6 months. Those that get the funding all too often go bust 6 months later & deeper in debt...

 

[Lisa Thomas]

...and a risk of wrongful trading claims being brought about...!

 

[estwig]

This was me twenty years ago, then again ten years ago, large residential projects. The business has no value beyond you, it is not a business because it's all about you, no one is going to buy it, therefore it has no value.

Strip everything you can out of the business, pay your men and your favoured suppliers, draw for yourself, everyone else can join the list of creditors waiting for their piece of nothing. Take a little time out and start again with your portfolio, a new website and new marketing. Don't flog a dead horse and don't kill yourself trying, put yourself, your family and your men first.
Live to fight another day.

 

[Lisa Thomas]

Definitely do not do that unless you want to get sued by any incoming Insolvency Practitioner...!

 

[estwig]

Definitely do not do that unless you want to get sued by any incoming Insolvency Practitioner...!

I know, you gotta be careful, take good advice, etc, etc. But it's not hard to do.

 

[Lisa Thomas]

? the advice you have given is not good advice... (imo!)

 

[estwig]

? the advice you have given is not good advice... (imo!)

Having done it twice already, seen others do it too and it's mine, I think it's great advice!

 

[Mr D]

Having done it twice already, seen others do it too and it's mine, I think it's great advice!

Even if its preferential treatment of creditors?

 

[estwig]

Even if its preferential treatment of creditors?

When there isn't enough money to go around, decisions have to be made by whoever has hold of the purse strings.

 

[Mr D]

When there isn't enough money to go around, decisions have to be made by whoever has hold of the purse strings.

And if another creditor disagrees with that? If an IP disagrees with that?

 

[estwig]

And if another creditor disagrees with that? If an IP disagrees with that?

It's not hard to deal with these things in a certain way. When you have a family to feed and bills to pay, you make choices, you take risks out of necessity.

 

[Mr D]

It's not hard to deal with these things in a certain way. When you have a family to feed and bills to pay, you make choices, you take risks out of necessity.

Yes, and some make different choices than you. Treating creditors equally.
Its not hard - they can all moan equally regardless of giving them part or nothing.

Directors responsibilities? Becoming personally liable?

 

[estwig]

Yes, and some make different choices than you. Treating creditors equally.
Its not hard - they can all moan equally regardless of giving them part or nothing.

Directors responsibilities? Becoming personally liable?

Homelessness or paying the vat man!

Have you any idea of the running costs of an RS7? Absolutely shocking!

 

[Mr D]

Homelessness or paying the vat man!

Have you any idea of the running costs of an RS7? Absolutely shocking!

Or set up a new company to earn money separate from the old company and its debts.
Its not an either / or binary solution. Not as easy as nicking money but what is these days?

 

[JEREMY HAWKE]

Homelessness or paying the vat man!

Have you any idea of the running costs of an RS7? Absolutely shocking!

We all know whats right and wrong but its very difficult to judge a person that puts their family before the. company debts
You insolvency people might find it appropriate to print the rule book and just do your job but there would be no way that I would comment on someone that put the kids first . certainly not on here just to make myself look professional

RS7 I think I can bring the money down on that !
Spanner it my own workshop !
Does it have rusty rivits !

 

[saythisinstead.co.uk]

You NEED this book.

https://www.amazon.co.uk/Profit-First-Contractors-Construction-Money-Making-ebook/dp/B07L38J49P

 

[estwig]

A couple of things I found out from last time my ltd went bankrupt:

The ltd owed Howdens about £8k, sent them the 'sorry about that old chap' letter, two weeks later knowing full well who I was, they extended unsecured terms to my new ltd.

Similar with Masterbuild, a chain of national building suppliers, but they put new livery above the door, same staff, premises, vehicles and stock, different name over the door. It appeared my ltd wasn't the only one not paying them. Again quick to extend unsecured terms.

The sharks circled quickly, offers of loans secured against the family home at extortionate interest rates where plentiful, just to tide me over of course. Same with IP's, popping up out the woodwork all over the place wanting to be my best friend.

Never heard a word from the vat man or tax man, owed over £20k in total.

BT got really nasty over a £138.00 phone bill, every dirty trick in the book and they kept on and on and on. They didn't get anything.

What did I learn, that it's all a fooking game and you gotta take care of you and yours first.

 

[Lisa Thomas]

We all know whats right and wrong but its very difficult to judge a person that puts their family before the. company debts
You insolvency people might find it appropriate to print the rule book and just do your job but there would be no way that I would comment on someone that put the kids first . certainly not on here just to make myself look professional

RS7 I think I can bring the money down on that !
Spanner it my own workshop !
Does it have rusty rivits !

People come on here asking for advice - As IPs we cannot advise them to break the law.

Of course the posters don't have to take our advice - they can ignore it and hope their actions don't come back to bite them further down the line. We are just warning them of the risks.

 

[Bay]

You NEED this book.


Great - I had struggled to find a book this specific.

Many thanks,

 

[Bay]

People come on here asking for advice - As IPs we cannot advise them to break the law.

Of course the posters don't have to take our advice - they can ignore it and hope their actions don't come back to bite them further down the line. We are just warning them of the risks.

Really useful to hear the letter of the law and also the first hand experience of someone who has been through insolvency navigating the pitfalls.

 

[Bay]

A couple of things I found out from last time my ltd went bankrupt:

The ltd owed Howdens about £8k, sent them the 'sorry about that old chap' letter, two weeks later knowing full well who I was, they extended unsecured terms to my new ltd.

Similar with Masterbuild, a chain of national building suppliers, but they put new livery above the door, same staff, premises, vehicles and stock, different name over the door. It appeared my ltd wasn't the only one not paying them. Again quick to extend unsecured terms.

The sharks circled quickly, offers of loans secured against the family home at extortionate interest rates where plentiful, just to tide me over of course. Same with IP's, popping up out the woodwork all over the place wanting to be my best friend.

Never heard a word from the vat man or tax man, owed over £20k in total.

BT got really nasty over a £138.00 phone bill, every dirty trick in the book and they kept on and on and on. They didn't get anything.

What did I learn, that it's all a fooking game and you gotta take care of you and yours first.

Really useful to hear the specifics of your experience. I know this is common in our line of work. Honestly I think I will not have the drive do it again for a good while and would want to understand where I went wrong and how it will be different next time. Im attracted to a salary at the minuet! I think companies future is dependent on what comes over the horizon - I have a couple of tenders out which if successful will get me out of trouble. I have made good chunks of profit of some jobs previously.

Also the cost of re-branding, hassle etc obviously needs balancing against the cost of servicing a loan to your existing company and carrying on?

Did you find customers put-of using you knowing you had just gone bust in previous company?

 

[Financial-Modeller]

OP, you give the impression that your current situation is caused by underpricing the large job, and perhaps payment terms that are impacting on your cashflow.

Ignore suggestions to not pay people if, as you say, you have a great company with a strong brand and a pipeline of work.

If you are 2/3rds of the way through the £250k project, the remainder is worth c.15% of your annual turnover. Complete the project, take a hit on your margin if necessary, pay your bills, learn from your mistakes and move on. Use the completion of the 'flagship project' to help you win future work at a better profit margin.

A couple of immediate thoughts based on limited information provided:

• Fully understand the total costs of operating your business
• Identify largest areas of cost and discuss reducing costs and/or improving terms with key suppliers
• Don't be afraid to turn work down if you can't complete it profitably
• Try to agree milestone payments on projects, that match your expenses closely e.g. stage payments
• Try to plan/model/calculate/understand income from your portfolio of projects relative to expenses incurred so that you know when 'pinch-points' will occur so that you can plan how to manage them in advance rather than reacting to an unexpected bill
• Don't forget to up-sell where you can add extra value.

 

[estwig]

Did you find customers put-of using you knowing you had just gone bust in previous company?

I didn't tell them, they didn't ask. Those who did know and where put off, I wouldn't have known about it.

 

[Mr D]

I didn't tell them, they didn't ask. Those who did know and where put off, I wouldn't have known about it.

A few of my current suppliers know about it. They were suppliers my company went under owing money to.
Come to think of it, all my old suppliers I owed money to I have as current suppliers except one, where I owed just over £3. Haven't talked to them about using them as a supplier since...

 

[estwig]

A few of my current suppliers know about it. They were suppliers my company went under owing money to.
Come to think of it, all my old suppliers I owed money to I have as current suppliers except one, where I owed just over £3. Haven't talked to them about using them as a supplier since...

I paid the small local suppliers so they were happy to keep with me. The big boys who didn't get paid, extended terms to the new ltd anyway.

 

[estwig]

People come on here asking for advice - As IPs we cannot advise them to break the law.

Of course the posters don't have to take our advice - they can ignore it and hope their actions don't come back to bite them further down the line. We are just warning them of the risks.

You could at least imply that you have your clients best interests at heart, rather than the dogma of 'pay everyone it's your responsibility'.

 

[Mr D]

I paid the small local suppliers so they were happy to keep with me. The big boys who didn't get paid, extended terms to the new ltd anyway.

And that could have backfired on you.

 

[Mr D]

You could at least imply that you have your clients best interests at heart, rather than the dogma of 'pay everyone it's your responsibility'.

The client who has responsibility to work on behalf of the creditors? That client?

 

[estwig]

The client who has responsibility to work on behalf of the creditors? That client?

Yea that's the one, the one with the purse strings.

 

[Lisa Thomas]

You could at least imply that you have your clients best interests at heart, rather than the dogma of 'pay everyone it's your responsibility'.

I haven't said 'pay everyone its your responsibility'...?

My clients are the creditors.

 

[estwig]

My clients are the creditors.

That makes sense, so from my perspective in this thread, your one of the bad guys!

 

[Bay]

OP, you give the impression that your current situation is caused by underpricing the large job, and perhaps payment terms that are impacting on your cashflow.

Ignore suggestions to not pay people if, as you say, you have a great company with a strong brand and a pipeline of work.

If you are 2/3rds of the way through the £250k project, the remainder is worth c.15% of your annual turnover. Complete the project, take a hit on your margin if necessary, pay your bills, learn from your mistakes and move on. Use the completion of the 'flagship project' to help you win future work at a better profit margin.

A couple of immediate thoughts based on limited information provided:

• Fully understand the total costs of operating your business
• Identify largest areas of cost and discuss reducing costs and/or improving terms with key suppliers
• Don't be afraid to turn work down if you can't complete it profitably
• Try to agree milestone payments on projects, that match your expenses closely e.g. stage payments
• Try to plan/model/calculate/understand income from your portfolio of projects relative to expenses incurred so that you know when 'pinch-points' will occur so that you can plan how to manage them in advance rather than reacting to an unexpected bill
• Don't forget to up-sell where you can add extra value.

Hi and thanks for your post. I'm pleased to hear a more positive outlook. Something I wasn't totally honest about in the OP is my P+L. My accountant gives pre-corp tax £9k. balance sheet net worth -£4K (end of Dec).

I increased this for the sake of the post as my cash position feels so much worse than this. I can't understand how this can be correct. I owe the revenue a lot of money.

I know there's a positive future for the company if I can get through this period. I'm also terrified of the risk of getting deeper into trouble. And cautious of the fallacy of false hope.

 

[Gordon - Commercial Finance]

Hi and thanks for your post. I'm pleased to hear a more positive outlook. Something I wasn't totally honest about in the OP is my P+L. My accountant gives pre-corp tax £9k. balance sheet net worth -£4K (end of Dec).

I increased this for the sake of the post as my cash position feels so much worse than this. I can't understand how this can be correct. I owe the revenue a lot of money.

I know there's a positive future for the company if I can get through this period. I'm also terrified of the risk of getting deeper into trouble. And cautious of the fallacy of false hope.

I definitely agree with @Financial-Modeller that it seems there is a possibility that its just this one poorly executed contract that is making you feel like you can't continue.

If its just a short term cash flow issue, there are plenty of solutions which can help you through it. Business loans were mentioned in the early days, and that would certainly be a possibility. I would urge that you have a really good long hard look at the situation though, and certainly with all the discussion above of insolvency I couldn't wholeheartedly say that getting a loan of some kind would be the right move. On the flipside of that though, none of us really have enough information to say whether you're actually insolvent or not, so I think still all avenues can be explored.