A highly successful retail outlet in a prosperous suburb sold high-quality white goods, electrical goods, cookers etc.  Its discerning customers came from far away to buy from this shop because of its reputation.  Not surprisingly, it was a family-run business, going back several generations.

Then one day, when shoppers passed by, they saw a sign affixed to the main door stating “Please note this business is now in administration. Anyone with any interest should contact the administrators N at …….”            How did a seemingly well-run business fail?

The truth when it emerged was mundane – the business expanded faster than it was capable of doing, extended into non-core markets and, though it had no bank debt, had assumed new liabilities that ultimately it could not meet.

So a well-run business was liquidated, nothing salvaged and the owner had to sell his family home of many years to satisfy some of the debt shortfall.

And yet…..and yet, with some careful planning, and professional expertise (at a cost, yes, but a cost negligible relative to the ultimate cost), it need not have ended like this.


The main issue was the structure of the business. Every aspect of the business was contained in a single limited company – all of the assets, liabilities (real and contingent) and the trade was carried on through this company.

In boom years profits rose allowing the company to acquire attractive premises –showroom and stockroom – which attracted heavy footfall of potential customers.  On the basis that no business should stand still, the company made three fresh developments over the next few years –

  • it moved into kitchen design, figuring that was synergetic with and would help feed the core business.
  • it opened another outlet in a similar area on other side of the city
  • finally the business was tempted to take a let in an upmarket shopping mall.

Then came the credit crunch, and people stopped moving house.  Many could scarcely afford a new kettle, far less refurbish their existing kitchens. Some people thought the problems would be short-lived, the economy would “come back”.

The owner of this business had to let some staff go and with a reduced headcount found he couldn’t keep the three units going.

The mall outlet wasn’t really best-situated as far as footfall was concerned, yet the company had entered into a 15-year lease with no break and upward-only rent reviews.

Eventually the company fell behind with the rent.  The landlord, a plc, showed no discretion and simply pursued the outstanding debt until the liquidators were called in.

But with some planning, the core business and the business premises could have been saved, with a bit of advice from experts in property, tax & finance;-

  1. the shopping mall had several empty units – an experienced property adviser could have negotiated the new let on much less onerous terms & perhaps in a better part of the mall
  2. secondly, that venture should never have been carried on in the same company as the existing business. With some tax advice, a sensible structure could have been devised that would have ring-fenced the “crown jewels” – the property and the original trade – at no additional tax cost.

Then, in any downturn, the owner would have had two choices –

  • had the lease been say on a 3 year term or less, he could just have run it down, knowing that his downside was capped
  • alternatively he could just have let the subsidiary company go down – assuming there were no gratuitous transactions involving that company, the landlord would have been unable to attack the other company

In that case there would have been a surviving business to carry on, even if it had been at some financial cost.   The owned premises would have been protected and the core business able to continue untainted.  Things could have been built back up slowly but surely and ultimately a business passed on to the next generation.

In short, for a manageable cost, most of the business could have been protected along with the property it traded from, the owner’s source of income, his employees’ jobs and his family home.

Stock business advice is never to stand still; but sometimes owner managers imagine they have only two alternatives –heady expansion or the status quo. There is a 3rd way – modest expansion, coupled with suitable protection of the existing business, should allow the possibility of long-term growth but with security.

It’s an old maxim but a good one; any change – contemplated or real – in your personal or business life should be an occasion to take fresh professional advice. Speculate in order to protect and hopefully accumulate for the benefit of you and your successors.