Unpaid Work is Not Voluntary Owner Directors Need Help

Jealousy is a terrible thing. The general public think that newspaper stories of excess by a few mean that all directors are 'fat cats'. Not so, the vast majority have become the new poor, the lowest paid often unable to be paid at all. The credit cruch has reduced turnover and margins to the point of squeezing out pay for the owner director. The jealous masses with fixed salaries, pensions and paid leave might ask, who are the 'fat cats' now?

Limited liability protects shareholders, but not directors. When orders reduce and other costs cannot be cut the only place left to go is to cut directors drawings from a business. There is no minimum wage for an owner director. Perhaps surprisingly, most owner directors have become the lowest paid, or not paid at all, employees in their company. In an often vein attempt to sustain their business through the 'credit crunch' they are working all hours and often borrowing on their personal account. Business is still being done but, with more businesses and sole traders chasing fewer orders, margins have been squeezed to the point where sales revenues no longer cover the full cost of the service provided.

Directors unable to make their pension contributions and then to pay themselves (properly), are two early indicators that a business will soon fail and become insolvent. Sadly, because the symptoms are a shortage of money the usual response of the director is to seek more money sometimes in the form of more sales. Breakfast networking groups are currently bursting at the seams with new members all desperate for scraps of leads for new business.

Unusually, when faced with a shortage of funds the response is to find help. However, the usual trusted advisors, the bank, the accountant, possibly even an insolvency practitioner, all have vested interests that are not in alignment with those of the business. An independent and better source of advice are business coaches or specialist turnaround management firms. This 'better response' is rare indeed. The logic for that is, the business is short of cash, so how can paying an expensive advisor help? How would they get paid?

The fact of the matter is that a key difference between a small company and a large one is normally the completeness of their management team. The smallest usually have only a full-time striker and part-time goal keeper. Whilst the largest have a full team and often a well stocked subs bench. They have the capacity to respond better to all of the non-core issues and can organise to find time to think about strategy and restructure. Bigger companies do reorganise quite frequently.

Running out of cash and working all hours for little or no pay is miserable. It soon becomes demoralising and the associated behaviour towards trading partners and employees can lead to the further loss of profitable business or the ability to satisfy it. When engaged, a turnaround manager will quickly assess the state of a business from its finances, its results and its behaviour. Frequently, some structural change and direct speaking with trading partners will allow the business to adapt to a form that can return to success and become capable of attracting investment and financial support. In critical situations, the tools of the turnaround manager using the legal framework and insolvency devices might be used to protect and reshape the business in order to allow it to go profitably forward.

Natrally, if a business no longer has a reason for being and has no prospect of recovery it should be liquidated. It is a sad truth that the vast majority of liquidated businesses lost their value in the liquidation process and with restructuring would have enjoyed a prolonged and profitable life. Owner directors should be aware that there is an alternative to liquidation and that good turnaround managers are capable of both realising a proportion of that value for shareholders and being paid themselves.