I was very sorry to hear that Andrew Grant in the Midlands had gone into administration.
It seems a sad end for a business that has been trading for almost fifty years, but I fear that it will not be the last business casualty of Covid-19.
Most letting businesses have performed well during the lockdown, but some businesses are having a more difficult time than others and despite the Stamp Duty Holiday, some are not going to make it.
So how do you know when your business has reached the point of no return?
The starting point must be to draw up a financial plan for the next twelve months.
If you cut your costs to the bone, what will your monthly running costs be?
How many houses will you need to let or sell to break even?
Is this performance realistically achievable?
If it is not, then there is no point burying your head in the sand.
You need to take actions now because the consequences of not doing so can be truly awful.
If you are a sole trader or a traditional partnership, you will be wholly liable for any debts that have been incurred by the business.
If your business is no longer viable, then you will therefore need to assess the cost of closing it down which may include staff redundancy costs, the cost of disposing of the premises and the cost of paying off any debts.
If you have a letting business, you might be able to raise a significant amount of money by selling it to a competitor.
Prices for good managed letting books have held up very well and the value of your letting book could be enough to save you.
If you do not have a letting business, then a residential sales business is worth the value of its pipeline.
Is the value of your pipeline enough to cover the closure costs?
If it is not, where will you get the additional money from to pay for the costs of closure?
One of the big things that has changed recently is that the government has announced that it intends to allow shops to be converted into residential units without planning permission.
This could be a real game changer.
I have come across a lot of businesses over the years who were trading at a loss because they could not afford to close down.
The problem was that they had given a personal guarantee for their shop lease and if they closed down, they would have to keep on paying the rent plus the business rates until the premises were re-let or the lease ended.
The calculation was that it is better to carry on working and losing £10,000 a year than it would be to close down and pay rent and rates on an empty shop of £35,000 a year.
Now, if the landlord takes the shop back to convert it into residential flats, this problem is solved.
If you trade as a limited company, you have the protection of limited liability and you may therefore be tempted to carry on trading.
However, you need to be very careful that you are not trading insolvently.
Many people do not know that company directors have a legal duty not to continue trading if there is no hope of the debts ever being repaid.
If you continue trading beyond this point, you can lose the protection of limited liability and run the risk of losing your home and your other personal assets as well as your business.
It is heart breaking to have to shut a business down but if your business is no longer viable, you must accept this and close it down now before a bad situation becomes even worse.
Adam Walker is a management consultant and business transfer agent who has specialised in the property sector for more than thirty-five years.
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