CONSERVATORIES & EXTENSIONS - 'C' LTD
A sole trader who, on the back of employing a small team, had grown his business to a turnover of £1.5m providing a design and build service for residential conservatories and extensions in his local area.
But he was also deeply frustrated. Depsire growing his businmess, real profitability still eluded him. He had that hamster-on-the-wheel feeling of having little to show for his efforts however hard he worked.
Like many, his primary focus hitherto (aside from growing sales) had been to cut overheads. And he'd been, by any measure, pretty suiccessful - they were down some 25%. But despite the size of the changes he'd made, this two-pronged attack failed to change the underlying dynamics to create fundamentally better cash flow.
He was, at this point, trading at the top of his overdraft with a payment plan to settle overdue PAYE [payroll tax] and after having failed to pay VAT [sales tax] on time in previous quarters, he had burst through every escalating penalty threshold in existence. And there was another VAT deadline looming. The situation was now utterly desparate with personal bankruptcy a very real risk.
At this point we were asked to provide cash flow help.
As in all these cases our first priority was to determine whether the situation was salvageable and secondly to understand what was driving the appetite of the business for cash. We could certainly see how the business could be saved but it was close - probably less than 2 weeks to spare - even with this entrepreneur's considerable strength of character.
From this inital exercise, as usual, we were able to shake out some quick-wins and provide the owner with some ready-reckoner targets and benchmarks. And to his credit he got stuck in. Thus we started to subtley re-shape strategy, systems and targets. And these changes bore fruit (just) in time for that quarter's VAT. It was an extremely close run thing but it was a start.
Since then, the PAYE payment plan was fulfilled and the VAT (including penalties) paid off out of cash flow. It has been a very bumpy ride though and due credit to the proprietor who maintained a delicate balance between being on-the-tools and seeing to the numbers-side and to the book-keeper who, not unusually, was very much at the sharp end.
Then the credit-crunch hit so it's somewhat early for the 'lived happily ever after..' Rather this is a continuing story but if there is any justice in this world......
What does this case demonstrate?
If you sense your business finances are not as you'd expect or if they are going awry (perhaps you have that hamster-on-the-wheel feeling) but don't know why, time can prove to be very much of the essence. Be wary of thinking, as initially the case here, that more sales and lower costs, simply have to work. There may be better ways of looking at things.
But there is a lot to be said for the fact that you make your own luck in business and we trust that this will prove to be the case here.
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