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A husband and wife were directors of this incorporated company that was established to buy the assets and business of an unconnected firm, so that they could run it as a new venture,.

Kitchen

The company, which had been trading for over 20 years, was involved in the design, manufacture and installation of bespoke kitchens and freestanding furniture.

The directors did have prior experience of running a distribution business for some eight years, but they were novices in the upmarket kitchen sector. They decided to enter into the sector with the assistance of a former employee, who they reengaged.

The business was purchased for £100,000, which was obtained through a loan from the directors and they also supplied the initial working capital. The former employee was appointed as the general manager and their role was for the design service, quotes, sales, as well as the management of production and installation. There was also skilled support on kitchen installation from three joiners.  The directors would be in charge of the financial, marketing and administrative duties.

Sales Drop off

The company, which was based in premises in Shaftesbury, Dorset, had taken on a five-year lease at an annual rent of £10,750. There was no overdraft facility with the company bank, Lloyds, and so the business needed to rely on cashflow. 

Although there had been a drop off in sales before the acquisition, the directors were not overly concerned as they thought that this  was the fault of the previous owner –  namely that they had not been able to spend enough time on the business.#This may have had elements of truth, as in 2014 and early 2015, the firm seemed to benefit from the new management. There was around three months’ work in the pipeline and cash was coming through reasonably well as most customers paid for their kitchens in instalments.

But, while busy, too often the takings were insubstantial. The company was unable to make sufficient profit as the work had been underpriced. The directors upped their levels of marketing in 2015 and into 2016, but this failed and the business was hit by a reduction in enquiries.

Although some orders were still being made, these were largely for individual pieces of furniture and these only had small profit margins, rather than for the high end bespoke kitchens, which was where most money could be made.

Market Conditions

The directors realised that they were largely powerless to change market conditions, which was the main reason why major kitchen orders were not happening. Buyers were instead opting for more affordable kitchens that were mass produced overseas, rather than hand made ones.

By spring 2016, and after the usual slow Christmas period, the company was finding it hard to cope with debts and the directors realised they would need to stop trading. Following advice from Company Debt, the business was placed into creditors’ voluntary liquidation.