Failing Business.

SPDH

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

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.

tacpot12

£45K is a lot to repay if you haven't got a viable company to help do so. I'm really sorry you are in this situation. The answer is probably to reorganise your business to take on work that doesn't require materials or that only requires materials you can get hold of easily. Your staff will recover from Covid, and hopefully do so quite quickly, so I think that issue should pass and that it will do so more quickly that the materials shortages. 

I don't think you can worry about being too expensive at the moment - many people are happy to find a reputable builder at any price! Perhaps consider some different forms of advertising?  

Sandtree

I'd speak to your accountant again and double check their advice on both the VAT and loan situation... certainly on the former your personal VAT status and your company VAT status are separate however HMRC may certainly challenge if you are genuinely engaging as a self employed person or are just claiming so to avoid paying the tax and diverting company money into your own pocket.

Is the other business not VAT registered? I know the construction industry is different in many respects but assuming they are then your being VAT registered doesnt impact their bottom line (assuming they arent flat rate) but just impacts their cashflow. Presumably you quoted as £1,000 + VAT rather than £1,200?

Optimising marketing is a complex enough thing for professionals to do and one man bands often dont have the experience of doing it but simply stopping advertising is likely to be a false economy as without advertising your new business work drops and the impact of this should be greater than the savings. 

Have you attempted to leverage what you already have? Contact previous customers maybe with a "recommend a friend" type thing giving them 5% of the labour charge if their friend hires you for anything (or similar)... the advantage of this type of marketing (similar to Quidco etc) is you only pay on success and so other than the time to send some emails or a small investment in maildrop prints its no cost if no one is interested. 

SPDH

Thanks for your reply guys. Honestly I am being undercut massively. On a 100k job I was undercut by 15k last week and that was with us on our bottom line with 5% Contingency. Of course my staff will recover eventually but in the meantime, we have hire materials such as scaffold all the way down to portaloos which have monthly hire costs. The less staff, the longer the job takes and the more everything costs. Also the time it takes to complete phases which I then invoice for and quite often have to wait for the invoice to be settled. We are 2 years into this now with no let up and its getting to the stage where we cope week by week. As I said, I've dropped my own salary to the point where I could earn almost double working for somebody else.

I have reorganised where I advertise to just keep the most efficient options open. These do still produce leads but our prices and the prices of materials are obviously effecting that with decreased demand. We are highly regarded within our small area and have been operating quite successfully before covid.

The other business is vat registered but they obviously have the option of subbing work out to non vat registered tradesmen and helping their own cash flow which I am assuming may go against me. I will also have to pay our bbl repayment back into the business out of anything I earn self employed apparently. I am going to call another accountant tomorrow. Our business year ends in Feb so hoping to find a solution for then. 

Sandtree

SPDH said:

The other business is vat registered but they obviously have the option of subbing work out to non vat registered tradesmen and helping their own cash flow which I am assuming may go against me. I will also have to pay our bbl repayment back into the business out of anything I earn self employed apparently. I am going to call another accountant tomorrow. Our business year ends in Feb so hoping to find a solution for then. 

Its cashflow only so unless they themselves have some difficulties (in which case you have to question their ability to pay) they should choose on quality rather than if VAT is involved or not

I didnt think there were any director guarantees to the BBLs but never got close, I think your accountant is advising against doing anything that looks like tax/debt repayment avoidance rather than categorically stating it has to be done a certain way however only they can clarify and certainly take their advice on these matters above strangers on the internet.

As to labour -v- hire costs... its again about optimising... not point saving £5k on labour but incuring £10k extra hire

Grumpy_chap

Sandtree said:

I didnt think there were any director guarantees to the BBLs but never got close, I think your accountant is advising against doing anything that looks like tax/debt repayment avoidance rather than categorically stating it has to be done a certain way however only they can clarify and certainly take their advice on these matters above strangers on the internet.

For clarity, the comments below give examples by way of discussion point only - I am not in any way suggesting wrong-doing by the OP.

There were no Director guarantees with BBLS, but there were rules on what the money could be spent on.  If a Ltd Co ceases trading, then we can well imagine that the lender will look into whether the money is really available.  There were some smart-alecs on the forum at the time the BBLS came out saying they'd take £50k in the Ltd Co, buy a Tesla, then fold the company.  In that kind of scenario, you'd want the bank to track down the Tesla to repay the loan.

The OP should, of course, take consideration of advice from the Accountant over anything in a forum as there is so much detail that can trip people up.  Some of the factors the Accountant will be thinking of would include:

• Linked businesses / trades.  A local company near where I live is ABC Driveways Ltd, but also ABC Landscaping Ltd plus ABC Driveways & Landscaping Ltd plus ABC Landscaping & Driveways Ltd, etc.  They do drive ways for private householders.  The sole reason to be split seems to be to negate the need to be VAT-registered.  One day they are bound to get noticed...  If the OP is SPDH Construction Ltd (VAT-registered and liable for BBLS debt) which is closed down and then starts trading as SPDH sole-trader (not VAT-registered, no BBLS debt) day-rate labour to a construction company, the possibility of a link may be real, the perception would be sure enough.
• There was a lot of discussion at the time on the forum about people claiming furlough from own Ltd Co (and unable to work) but able to work for another or as a sole-trader and not breach the furlough rules.  The general consensus seemed to be working as a bricklayer for SPDH Construction Ltd but then going on furlough and starting as a sole-trader building garden walls as SPDH was not really a separate business and only to circumnavigate the furlough rules, whereas if the sole-trader business was something entirely unrelated, say knitting dog jumpers, it was sufficiently remote that the furlough rules have not been breached.

It seems as though the Accountant is really urging caution against that type of perception.

One option the OP may have, that is a bit interim between carrying on the company or working as day-rate labourer is to work as day-rate labourer through the Ltd Co.  It may well be best of both worlds, so long as the day-rate labour work is outside IR35 and depending upon required CIS status.

This does, though, need to be routed through the OP's Accountant.

Sandtree

Grumpy_chap said:
It seems as though the Accountant is really urging caution against that type of perception.

Which on both BBL and VAT is what I assumed and suggested but let their accountant clarify given the OP seems to have taken it as a definitive statement rather than caution

trailingspouse

Can I just clarify - you say you've 'dropped your salary to £30k'. Is this actual salary, paid entirely via PAYE, or is it a mix of salary and dividends? If it's the latter, then remember that dividends are paid out of profit - and from the sound of it you're not making much profit.

If you really can earn twice that working for someone else, then the solution seems obvious. Sorry.

SPDH

Morning.

No that's salary only. As you correctly said we have made no profit so dividends aren't available.

I will price my next jobs at an increased rate leaving room for some negotiation in the hope that we manage to get one and actually make some money. I'm not holding out much hope though. Just to get a reply from people is hard enough so a conversation negotiating a next step would be great. I will be taking all advice on board though and choosing my words carefully. After the vote in Parliament last night I have a funny feeling people will be holding off even more now.

Jeremy535897

A discerning buyer won't automatically go for the cheapest price if you can differentiate what you do from the lowballers. It's hard to do without it sounding like an excuse, but the reality is that those one man bands that undercut you are likely to do a poorer job, or leave half way through it. Try to emphasise why they should pick you and not just the cheapest going.

evalogan

God will help you and never give up