Case study 6 – Small Web Design Company London
Rescued by a CVA in 2010, this manned guarding company based in east London called us for help in late 2011. Sales had grown steadily to around £1.3m pa, but break even levels were hard to budge down from £1.5m pa.
We looked at the cost cutting issues again and again, but without taking out the fixed cost of the directors, the losses would continue.
So far so good, saving costs and cutting overheads was a good plan.
But there is always a "legacy debt" or ball and chain following along when a company sees sales fall fast. Some £40,000 of VAT, corporation tax and PAYE liabilities were simply unsustainable for a company now nearly two thirds smaller than when the debts were incurred. Cashflow was poor, despite factoring in place with a big bank provider.
Second main issue was a director's overdrawn currrent account - he had been drawing cash out monthly to live, this was not going through the PAYE scheme and at the end of each year his accountant would fix this by the voting of a dividend from retained profits. Well that's a good plan (or was before RTI was introduced in 2013) if profits are being made. The company had LOST money, so no dividends were payable. This resulted in an overdrawn directors account of £211,000. He had no money to pay this back in say a CVA.
So our advice was sell the assets such as they were, work in progress and equipment to a new company. We arranged for a professional valuation, wrote the contracts for sale, advised him on the process. We also provided legal advice on the insolvency, set out board resolutions and guided the director through this difficult time.
Cheswick also arranged for a new small factoring facility for his new company, with a specialist provider who understood the previous insolvency issues. So newco is trading and being funded by factoring, the company is paying for the work in progress - back to oldco - as it completes new work.
Does your company face large tax bills, looming overdrawn directors' current or loan accounts? Do you need to sell or restart the business quickly, but don't want or cannot afford pre-pack administration? Call us now for a fast solution.
Our fees for the above rapid professional solution? Under £3,000.