Plastering Company Case Study
The firm was set up by two directors, who were both plasterers, and based in Poole, Dorset. The two were confident they had the ability and know-how to run their own company.
At first, the company focused on the residential sector, taking on smaller jobs within homes and the first year proved moderately successful for new business. The directors then decided they should take on higher value commercial contracts and using their contacts, they found work with a number of small builders on housing development projects.
So that they could manage the increased workload, the directors took on a number of subcontractors. During this time, the directors also spotted there was a gap in the market for providing liquid screed and spray rendering. These two services meant work could be completed with greater speed and efficiency when compared to traditional plastering. They decided to invest in the necessary pumps and also set up credit accounts with suppliers.
The company was trading well and continued to grow, with increased turnover reflected in the company’s accounts. One key success was winning an important contract to do all the rendering work for one of the biggest dry-lining companies in the south of England, which meant working for national developers.
Longer Payment Terms
As the business grew, new pumps were purchased, along with additional company vehicles under finance arrangements. Funds coming into the company were enough to support this, but there was a stumbling block – working on commercial projects meant a change in payment terms. Unlike domestic jobs, where payment was generally made immediately after completion, there was now a need to wait at least 30 days, while also needing to have to pay for materials.
This resulted in cashflow pressure and matters were worsened when the dry-lining firm the worked with ran into financial problems. It resulted in a delay in receiving payment of several months. To cope, the directors secured an overdraft facility with their bank for which they were required to provide a personal guarantee.
Meanwhile, the directors needed to find replacement work and began sourcing this. They were successful in finding work for larger building firms, including one with several sites in the south of England. The company was taken on to supply and install all the rendering, floor insulation and screed on a new build development.
All went well initially since payment was usually made on time. But, as the last phase of the project concluded, the directors learned that the developer had entered into Administration because of large debts.
The knock-on effect of this for the company was serious and work with other clients also reduced. The directors struggled to meet payments to suppliers and this led to ill feeling. When efforts were made to set up a payment plan with one of the largest suppliers, this was rejected because of the ongoing arrears.
The situation was bleak, with creditors threatening winding up action.
Wishing to avoid an imminent winding up petition, the directors asked their accountants for help and it was recommended they contacted Company Debt. Following discussions, the business was placed into creditors’ voluntary liquidation.
This involved independent valuers assessing the value of the business and assets. Following this there was a satisfactory conclusion with a sale to a company which the directors were connected to. The appointed Liquidator at Company Debt, after realising the assets and gaining a tax refund through corporation losses, was also able to provide creditors with a distribution of the proceeds.