Business Failing

SPDH

Apologies if this has been spoken about, I can't seem to find anybody in my situation and would appreciate some advice.

I'm a director of a struggling, small, ltd construction company, est. 5 years, vat registered and currently owing around 45k in bounce back loans.

Due to rising costs, endless delays procuring materials and most of my workforce and their families catching Covid. We are really struggling. We are getting undercut to the point where if I dropped prices any lower I wouldn't be able to pay my rent. (Yes, I'm generation rent) live in SE England. Wife works for NHS part time around children and our bills are the best part of 2.5k per month. We have very little personal debt and before the pandemic were doing well saving for a mortgage. That's another story though.

Back to the business. Its a noose around my kneck at the moment. I have dropped my salary to 30k. Sold our rubbish van, got rid of our storage unit and cut costs we spent on advertising in order to be able to lower prices and compete. Its not worked. I'm now getting less enquiries and we are still too expensive. I have asked my accountant for advice (I have stretched the repayment for bbl to 10 years) and he hasn't suggested anything worthy so thought I would try here. I have been offered work for another business on a self employed basis but my accountant says I will still be vat registered personally and I will still have to pay the BBL from my own earnings into my business account which basically prices me out of the other work I have been offered due to the amount I will have to charge for my services. 
I have no idea what to do, even insolvency sounds too expensive for me. Further covid restrictions are obviously coming and I've no idea how the business or I survive without severely impacting my personal finances, any chance of getting on the property ladder and to be honest, my mental health. I feel like I'm stuck between a rock and a hard place and maybe I'm just trying to prevent something that is unpreventable and some kind of bankruptcy beckons.
Any advice is greatly appreciated.

Jeremy535897

I have been offered work for another business on a self employed basis but my accountant says I will still be vat registered personally and I will still have to pay the BBL from my own earnings into my business account which basically prices me out of the other work I have been offered due to the amount I will have to charge for my services. 

Your limited company will still be VAT registered, not you personally. However, if the work you propose to do would be the same sort of work that your limited company does, then it may well be that it should be put through your limited company, hence your accountant's comments. It needs further exploration. If your company is insolvent, as it may well be if it has no income and owes a substantial sum on a BBL, you may be in the situation of wrongful trading (the suspension of these rules ended in June 2021). I suggest you post this on the debt board here.

SPDH

Thanks for your comment. Yes would be the same type of work. OK will re-post. 

Grumpy_chap

SPDH said:

Apologies if this has been spoken about, I can't seem to find anybody in my situation and would appreciate some advice.

I'm a director of a struggling, small, ltd construction company, est. 5 years, vat registered and currently owing around 45k in bounce back loans.

Due to rising costs, endless delays procuring materials and most of my workforce and their families catching Covid. We are really struggling. We are getting undercut to the point where if I dropped prices any lower I wouldn't be able to pay my rent. (Yes, I'm generation rent) live in SE England. Wife works for NHS part time around children and our bills are the best part of 2.5k per month. We have very little personal debt and before the pandemic were doing well saving for a mortgage. That's another story though.

Back to the business. Its a noose around my kneck at the moment. I have dropped my salary to 30k. Sold our rubbish van, got rid of our storage unit and cut costs we spent on advertising in order to be able to lower prices and compete. Its not worked. I'm now getting less enquiries and we are still too expensive. I have asked my accountant for advice (I have stretched the repayment for bbl to 10 years) and he hasn't suggested anything worthy so thought I would try here. I have been offered work for another business on a self employed basis but my accountant says I will still be vat registered personally and I will still have to pay the BBL from my own earnings into my business account which basically prices me out of the other work I have been offered due to the amount I will have to charge for my services. 
I have no idea what to do, even insolvency sounds too expensive for me. Further covid restrictions are obviously coming and I've no idea how the business or I survive without severely impacting my personal finances, any chance of getting on the property ladder and to be honest, my mental health. I feel like I'm stuck between a rock and a hard place and maybe I'm just trying to prevent something that is unpreventable and some kind of bankruptcy beckons.
Any advice is greatly appreciated.

As Jeremy mentioned, there is an inconsistency in your comments about you being VAT-registered personally when that is your Ltd Company.

Do you think there could be a connection between the two parts highlighted in bold?  Is it worth doing some new advertising?  You may even be able to promote the services in the local area for free or very little costs if there are local Facebook networks and such like - a local one-man band construction company near us is quite apt at achieving that type of free advertising:

• When there was a storm, he put a post in advance along the lines of "storm coming, fix your fence now, free fence posts for all new fences this week"
• When the leaves fell, he put a post "gutter clearing this week's special offer"
• On the day we did have a storm, a post "we'll fix your roof, emergency call out service"
• Easter post "special offer on new patios in April - enjoy the garden all summer long"

You have not said much about what type of construction you do and in the area local to us, every construction company seems to have been very busy all throughout COVID.  If the normal work is not available, can you adapt in any way the type of service your offer?  If you have £45k BBLS, then your previous turnover must have been £180k or more.  What level of turnover would you need to maintain the business?

In the very immediate term, as well as extending the term to 10 years, the BBLS does allow a payment holiday and / or to pay interest only for a period.  These options will increase the total payable (because of interest accruing) but may be worth considering if you need to gain some "breathing space".

Have you prepared your own business plan or, if not, can you put one together with the aid of your Accountant?  That may help you see some clarity on direction and make the decisions that need to be made.

Good luck.

SPDH

Hi grumpy, thanks for your comment.

The advertising I do does still produce leads and it has saved us costs. I do also utilise free sites etc. Its not the lack of leads that is the main issue, its more so the decreased demand to accept the costs we have to charge. As I've said, we can't match the one man band builders. I need to earn around 5k per month in order to cover my wages, business expenses and bbl repayments. I do 6 days a week, plus evenings on the computer pricing, sorting vat and tax obligations as well as going out looking at jobs. Many don't even reply once I've spent 2 evenings working out their costs. All for £1900+ take home per month. Its running me into the ground and I cant seem to find a way out. 
We do mainly domestic work, extensions and renovations. We were clearing 400k turnover before covid. 

I will definitely enquire about the bbl breathing period. That could help alot.

Grumpy_chap

SPDH said:

I need to earn around 5k per month

I do 6 days a week, plus evenings on the computer pricing, sorting vat and tax obligations as well as going out looking at jobs. 

£1900+ take home per month. Its running me into the ground and I cant seem to find a way out. 

We do mainly domestic work, extensions and renovations. 

This is what I can't understand, or it at least seems inconsistent.

Is the 6 days a week the time spent actually working, actually on fee-paying jobs?
For a 4-week month, that means 24 working days generating fees.
That is actually a good thing and it proves you are getting the work.

For your £5k / month plus VAT = £6k charged to customers. 
£6k.  24 days.  Only £250 per day. 
I know, as a domestic customer, that is certainly not a steep rate for any skilled trade. 
I also know, as working in the construction industry, that we are paying £150 per day for day-rate unskilled labourers.

If you are only bringing home £2k per month (and I assume your Accountant has given advice on tax efficient means of withdrawing funds from the Ltd Co), why is your day rate so much lower than it needs to be?
Are you estimating that a job will take, say, 3 days but then taking, say, 4 days?  The only thing is this type of under-estimating does not align with your previous comments of being undercut on price.

Hope that helps you to understand as I remain confused.

SPDH

Yes you are bang on. I'm charging £250 day rate and still seem to be getting undercut. Occasionally work is under estimated but I wouldn't say this was abnormal in domestic renovations as I only price what is on the plans. Quite often the full scope of works isn't on the plans and of course we then have chats with the customers to find solutions so I'm not doing works for free if that makes sense. This is my conundrum. I can't charge less. I have work paying that amount up until end of January. I have priced over 10 jobs just this month and feedback from those potential customers was that we are too expensive compared to other builders that have priced the same projects. As you can imagine I'm working my backside off to stay afloat with very little gain. 
And going back to your point regarding what you pay for unskilled labour. As I've said, I know I can earn more working for other companies as a sub contractor but my accountant has advised me this may be viewed as some form of tax avoidance and I would still be obligated to repay the bbl personally out of my earnings for that plus I would still be vat registered as apparently the tax man would not be too happy with me trading under a self employed basis and not being vat registered. I'm slightly baffled as to a solution. 
To give you an idea of my company reputation, we are currently rated 10/10 on checkatrade and was a member of fmb up until me having to cut costs and not renewing our membership so reputation and quality of work isn't the issue. 

Appreciate your comments and apologies if there are inconsistencies. Will do my best to clear up any questions in the hope of working out some kind of solution.

Jeremy535897

A straightforward explanation of the VAT issue is here:
https://www.greenaccountancy.com/tax-news/vat-threshold-when-more-than-one-business/

The issue regarding doing work outside the limited company as a subcontractor is unlikely to be tax avoidance, although there might be issues if you billed company customers and had free use of company assets. The issue is more as to whether not putting all the potential income through the company creates a problem if the company goes bust owing money.

I am no legal expert, but if the company is not going to be able to repay the BBL/other creditors, the best approach seems to be to close the company down, perhaps through a CVA, and then to go and earn a living as a subcontractor. The debts (except those personally guaranteed) go, there is no VAT issue or tax avoidance issue, but of course there is the issue of employees who rely on you, and potential loss of reputation. However, if the company is not going to be able to recover, these issues are only being postponed at the moment.

Grumpy_chap

If the OP is doing paid work for 24 days per month at £250 per day labour rate and fully booked like that until the end of January, but only taking home £2k per month, where is the money going?

The labour rate (£250 per day) does not include materials or equipment hire.  That is all charged extra.

If customers are going elsewhere because there is a cheaper quote - I simply do not believe that in a normal market, so:

• Customers are simply lying to try to get you to drop your price
• Customers had no idea what it would cost, so simply say too expensive and don't do the job
• Some other company is "buying" the work, which is not sustainable.

I understand the position of both your Accountant and Jeremy about the separate business but same trade - I think it was discussed at some lengths in these forums in relation to various forms of COVID-support some while back.  So, the devil would be in the detail on this and not easy to cover in a public forum.

As to the Ltd Co ceasing trading and that ending the BBLS liability - I suspect the bank will challenge how that funding was used in the support of the business within the rules of the BBLS scheme.  

Given that you are dealing with householders, and members of the public being the worst kind of customer as they always want a "bargain", and you have work booked until the end of January (at £250 per day), what about pricing any jobs you quote between now and Christmas at £300 per day?  If the customer comes back claiming "too expensive", you have the opportunity to discuss the price with them and some wriggle room available, rather than pricing at the lowest possible and needing to walk away.  You can also lay on how busy you are, so fully booked until the end of January, but a cancellation and, if they give you the order at £275 per day (or whatever), you can fit them in first week of February, and you see how lovely the customer is and you'd be happy to deliver the great job for them as you can see they really want it...

SPDH

Thanks for your comments again. I'm finding this really helpful. 

In terms of where the 50k went. We took 25k at the first lockdown, which saw us through that period with around 10k left. We had a roof off a property which basically costs us around 10k to temporarily cover and around 10k to repair damage to the existing property and its contents once we came back. We then took the other 25 once we knew we were heading for the 2nd lockdown. We paid off all finances we had on vans, insurances and everything for the year. I took 10k that was owed to me from the business on advice from accountant and we still have around 5k left which is basically our very small safety net. We have suffered ridiculous delays getting materials throughout the year and have managed to keep my main staff of subbies on board, without really making money off them in the hope that we would hit the ground running once all issues subside. Probably a bad call on my behalf by the looks of it. I did furlough myself during this period to try to relieve the burden on the business and it did help but obviously not to the extent where we actually made money because we didn't. We are just surviving still which obviously isn't sustainable. 

I am going to take your advice on board and price higher. I have a couple of potential jobs to price this week and will take , I guess, a s**t or bust approach and hope that we land one of them. 

Grumpy_chap

SPDH said:

I am going to take your advice on board and price higher. I have a couple of potential jobs to price this week and will take , I guess, a s**t or bust approach and hope that we land one of them. 

It's not a "do or die" approach that I am recommending, but more of an approach that gives you some room to negotiate.

Say, you are quoting a job that will take you one week, so £250 x 6 = £1,500 plus the same again (£1,500) in materials.  You would sell that job at £3k + VAT = £3.6k. 

From what you say, at the moment, that's the price and if the customer says it is too much or someone else is cheaper, then you can only walk away.  You never even get to find out how far away you were from sealing the deal.  You never know whether it was your job for the loosing - it is not always the cheapest price that wins, but people still want to feel they got a good price.

If you increase the labour rate to £300 x 6 = £1,800 plus the same materials (still £1,500 as they don't suddenly cost more), so the quoted price is then £3.3k + VAT = £3,960.
Now, if the customer says "too expensive", you can discuss with them.  Try a response such as "I've priced this fairly, but what is your target that you are trying to get to, and would that secure the order?"  
If the customer asks for way too low, say £2k, you can explain that's not possible to get to, suggest the very best you'd get to is £3,750 and then leave them to it.  You never know if they'll call back.
However, if the customer says "I'd really like to get to £3k, but could stretch to £3.4k tops", suggest that will be difficult but you'll go and have a good look at the figures and call them later in the day. 
Make that call an hour or so later.  If you are feeling brave, go back with "I've worked this really hard and found a better price for the bricks so I can get to £3.6k" 
That might do it, and if not, but you feel the customer is close, you could follow up with a line following "I'd really like to make this work for you, look it's Christmas, I know it is an expensive time of year, if I get this to £3.5k, do we have a deal today?" 
Based on the response, you'll know to walk away or shake their hand.  If you do find you are walking away, don't do so without leaving the customer a route back, so "I've enjoyed meeting you, and I'm sure the XYZ will be a great improvement to your house, I'm just really sorry I can't get to where you need me to be on the price.  Thanks for giving me the opportunity, and if you do have any queries or find you can stretch the budget slightly, I'll be pleased to speak further."

You have mentioned that you have an established reputation in your local area.  I know, when I get work done, I sometimes have preferred contractors.  So, any work in the garden, I always go to the same person and I know his price is not the cheapest but the quality of the work is fantastic.  Often I'll just get the one price, rarely I'll get a check-price, but I'm not into wasting my time really (nor the other company's time) so if the price is OK from the company I want to give the work to, I'll just do that.  If my gut feel is that the price is steep, I'll look to negotiate with him.  Sometimes, I'll leave a job and wait until the preferred contractor comes back knocking on my door with the line "Did you ever get that work done?  No well, look, I'm short of work this week, if you keep me busy, I'll do it for £X"  Given the known quality of the preferred contractor, it's unlikely I'll have gone anywhere else and this is a solution that works win-win.

You might feel uncomfortable doing this, maybe more like a car salesman than an experienced tradesperson, but it has to be worth a shot!

Regarding "where did the money go", it was not really the BBLS I was querying, but the monthly basis of earning £6k (£250 x 6 x 4) yet saying you are taking home <£2k monthly.

Anyway, good luck