Desperate Owner Directors Unable to Get Paid

The oft uttered phrase of 'fat cat' about anyone who is a company director from mid-ranking private sector employees and public sector workers, whos' maximum risk is that they might one day be made redundant, now sounds more hollow than ever. The fact is that the vast majority of company directors are small or medium size business owners who, for the most part have not been paying themselves properly for months, if ever. So, if the owner directors are poor as church mice, 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. Most owner directors are now the lowest paid employees in their businesses. They are working all hours and often borrowing money in an attempt to sustain their business through the 'credit crunch'. 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. A good turnaround manager will rapidly assess the state of a business through an examination of the finances, performance and 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. However, the vast majority of businesses that are liquidated had the potential for a much longer life and the realisation of great value that is lost in the liquidation process. 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.


------

About the author: Tim Meadows-Smith is an experienced non-executive chairman, director and business advisor. His classical sales and marketing background was gained with famous global brands. He is now a hands on investor and turnaround manager focused on FMCG, logistics, service and technology sectors. Find further articles at http://www.timmeadows-smith.co.uk/blogarticles.php find a directors guide FREE to download at http://www.rescue.co.uk