By Robert Craven, MD of The Directors' Centre
Much recession advice ignores the natural response to shrink a business (even though many people weren't happy with expansion in the first place).
A quick report back from a meeting back in January: Trevor came to talk to me because I have a reputation for growing other people's businesses. So how could I help him?
Trevor runs a smart niche design company designing and creating high-value, premium-priced silverware. Employing 11 others, the studio has had its ups and downs. Recently the downs have been more pronounced.
As a fan of using disruptive, shock tactics, I proposed that Trevor close the business and declare himself bankrupt.
Why? Well, here was his list of catastrophes:
- "Most of the staff earn more than me these days"
- "Demand and enquiries have dried up"
- "The competition are giving the stuff away"
- "The lease is about to expire on the studio"
On top of these basic economic problems there were some other one-off blows to the head:
- "My chief designer has resigned to join the competition at a better wage"
- "An ex-member of staff is taking me to a tribunal for unfair dismissal"
- "The VAT man is visiting next week after a spot-check last month"
His final comment was the one that was the clear statement to himself: "I could earn more and be happier if I went back to working on my own."
So, I proposed that he make himself bankrupt. Go to the insolvency courts and do what was necessary to wind up the business. End the pain and misery and earn more stacking shelves at Sainsbury's, with the added bonus of having none of the worry of dealing with all these wretched non-existent customers and staff.
It was not what he wanted to hear. Trevor's response was noticeably agitated, along the lines of "How dare you suggest that I throw it all away?"
He then returned to his previous statement and realised that contracting the business would be the answer. He did not have to declare himself bankrupt - that was just a ruse on my part to challenge his mindset. So, he set about closing the business. Re-starting as a sole trader. Outsourcing all the work to ex-employees who could also become freelance. Working from home.
Apart from ensuring that everything he did was legal and above board, the road ahead was relatively straightforward. Employing a friendly yet highly effective local solicitor and accountant, as well as digging up an employee/HR consultancy agreement that defended him against the employee claim, enabled him to reach advantageous deals with employees and suppliers. This meant that he was not so seriously out of pocket as originally predicted from the business closure.
After about six weeks of taking the old business apart, Trevor has reappeared. Like the phoenix from the ashes. Last year he had to find £15,000 per month just to pay the staff and landlord. None of that now.
In Trevor's new world, everything is lighter and brighter. He is still involved with former clients but he only pays for supplier services after he has made a sale. And residual contracts earn him enough to keep his head above water.
From facing the brink, Trevor found an escape route. It was unfortunate that he had to face the precipice to have his "Aha" moment. As he says now "No-one can imagine the pain and suffering one goes through as you see your world falling apart around you. And the answer had been staring me in the face, but I hadn't been able to see it for myself."
A couple of thoughts:
- Sometimes the answer is to retrench, contract and generally make your life easier
- Employing people is difficult and does not suit everyone; making them redundant is even harder
- Often we cannot see the wood for the trees and we need outside support and assistance - DIY is rarely the answer.
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