Client in real financial difficulty

Client in real financial difficulty

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I have a category C PITA client who is now in real financial difficulty now. The business is a wine bar and restaurant. 2 other business in the same trade in the area have  closed down.  I have had this client for about 2 years now. 

He was not able to pay his VAT for the last quarter. I asked him to call HMRC debt line and agree installments with them.

This is my first client in such difficulty. My question is how else can I help this client? I really want to help the two directors, but I am not sure how.

Replies (39)

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By ShirleyM
14th Sep 2011 06:49

One view

Look at the business ... could it be turned around? If yes, work with them to make it profitable.

If it has no chance, get them out of the hole before they sink further. Don't make the mistake of allowing them to stick their head in the sand and ignore the problem ... it will only get worse. If they owe money to HMRC and there are other creditors, I would get an insolvency practitioner involved.

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By uktaxpal
14th Sep 2011 07:42

good advice
vote from me

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By JCresswellTax
14th Sep 2011 09:05

Sorry for being dumb

But what on earth is a "category C PITA " client?

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Replying to Flying Scotsman:
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By ACDWebb
14th Sep 2011 09:21

presumably

JCresswellTax wrote:

But what on earth is a "category C PITA " client?

Not a very good one and a Pain In The ####

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Replying to Flying Scotsman:
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By Steve McQueen
14th Sep 2011 09:23

PITA generally means "Pain In The Assets", I would assume catagory C is the bottom of the ranking that FT applies to his clients

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By JCresswellTax
14th Sep 2011 09:25

Ah!

I was expecting something technical!

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By ShirleyM
14th Sep 2011 09:25

@FirstTab

https://www.accountingweb.co.uk/anyanswers/question/unplanned-workload-clients-financial-difficulty 

It may help you (not your client) to read the above thread. Don't make the same mistake as me.

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By Owain_Glyndwr
14th Sep 2011 09:48

-

If they cannot pay their VAT they are probably technically insolvent. If realistict projections suggest this situation will continue then you have no option but to advise them to cease trading. 

Which part of the business is losing money, is it the wine bar or the restaurant. Would closing one side save the other ?

Have they looked at the possibility of selling the business?

 

 

 

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By uktaxpal
14th Sep 2011 10:12

as an outside chance......
is it worth putting in a call to the celebrity chefs?

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By James Hellyer
14th Sep 2011 10:12

@FirstTab

In the first instance, I would have called the Business Payment Support Service myself rather than get the client to do it. They seem more inclined to agree plans with agents (probably because we know what to say).

Secondly, you need to assess the situation the business is in and whether it's situation is so dire that you should refer them to an Insolvency Practitioner. At the very least, your Professional Indemnity Insurer may appreciate a letter on file reminding them of the directors' responsibility not to continue trading if the company cannot pay its debts while they fall due.

More helpfully, have you reviewed your client's margins and overheads and helped them establish KPIs to try and get them on track? In that trade they should be hitting a GP of around 65% and have staff costs as a maximum of 25% of turnover. How do your client's figures compare to that?

 

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By Moonbeam
14th Sep 2011 11:33

Business Payment Support Service

I would never call this lot on anyone's behalf. Where is the incentive for the client to keep his word if you've done all the promising for him? And if the agreement isn't kept by the client then your name is muddied.

Last year I had a client with great financial difficulties who discussed with me at length how to deal with BPSS. He then called them himself and was successful in negotiating payment terms.

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By WallyGandy
14th Sep 2011 12:46

On behalf of my client......

 

@Moonbeam- good point.  Such calls are usually understood to be "perpro" and you should suffer no comeback if the client reneges.  It's understood you'd summarise the arrangement in writing to the client.  And, yes, the client getting a better response is commonplace- it just depends who you speak to at the other end.

@FT- Clearly you want to keep the client!  There's no fault in that as your own standards should be respected.  Care, though- "it was the accountant's fault" is a possible threat to your reputation.  (Blame someone else philosophy) The only warning bell is not to encroach upon advice in the domain of an Insolvency Practitioner and leave yourself exposed. Why not gather your facts and accompany the client to a meeting with a local Insolvency Practitioner?  You're networking, and covering yourself in many ways- if it goes pear-shaped then it may be the "insolvency accountants fault" and not yours! If you want to do this at little or no cost to the client so be it. If the client was Cat C in this business he may be Cat A in his next venture.

But the fact that similar businesses have failed tells it's own story.  Good luck.

 

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By MBK
14th Sep 2011 13:45

Insolvency advice

Most accountants should be able / willing to give basic insolvency advice. We certainly do without any worries, We need to be doing that to bring independence to the process - IP's have a vested interest!

Two contributors have said that you should advise the clients to cease trading. It's not that simple. It is perfectly acceptable to continue trading if by doing so the client will improve the position of the creditors (not individually, taken as a whole). In practice this usually means making a profit going forward, although it could be related to waiting for a new injection of capital. The client should be advised to prepare forecasts and hold and minute a board meeting justifying the continuance of trading. That should be updated at least monthly. Obviously, the forecasts need to be reasonable.

Many clients are concerned about personal liability. In most cases they don't understand that (a) the above course of action will see it off (b) only the insolvency practitioner can pursue personal liability and (c) even if such a case were to be pursued by an IP, the client can only be made personally liable for the additional deficit arising after the date when they should have ceased trading.

Don't forget to sort out your own fee position. You need to be aware of being paid as a "preference", but a simple letter to the client stating that you have become aware of the financial difficulties and consequently will not be able to provide much needed assistance / advice until existing indebtedness is cleared (plus possibly a payment up front) will head off any question of preference.

Alternatively, take a personal guarantee. We use PGs with great success.

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By DMGbus
14th Sep 2011 13:55

Action plan

Ask the directors to reduce their drawings from the company to a level that the company can afford.  If they say "no can do" then say to them "well if you don't the company will go bust and how will you be able to live off nothing then?".  This wake up call is very necessary in my opinion.

As a temporary measure suggest that they seek temporary additional finance, probably from family as banks might not be willing to lend.

Ask the client what they have done to try and pick up the trade lost by their closed down competitors - the customers from these local competitors MUST have gone somewhere, why hasn't your client capitalised on the situation and tried to pick up this trade to improve turnover?  Also, less competition = opportunity to increase prices / improve margins.

 

 

 

 

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FT
By FirstTab
14th Sep 2011 19:24

Big thank you all

Thanks you all I found the varied comments really helpful.

Shirley your thread link is a very good warning about being too nice. Like many I am sure, I really do not want to see clients in this situation. It is very likely I would have lost the commerical aspect of all this.

From reading this thread I have come up the following actions points:

I will give away 2 hours of my time without charge, after this I will agree a fee with themASAP produce a cash flow forecast - cash is king. Then look at what actions can be taken to improve their cash flow.Produce a profit/loss forecast. Then look at the areas they can cut down.If all fails, discuss about closing down before things get even worse.

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By petersaxton
14th Sep 2011 20:40

Good plan

That sounds a good plan.

Don't just agree a fee - agree a payment schedule, too!

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By The_Saint
16th Sep 2011 12:39

Distressed Wine Bar ? Pub

All the advice offered seems quite fair. Is there a business worth saving / capable of being turned around / what are the business owners prepared to invest in order to make it work?

 

Given the failure rate of  pubs and wine bars (high), If there is a need to appoint an Insolvency Practitioner do ensure that you seek someone with a decent reputation.

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By carnmores
16th Sep 2011 12:40

i agree - sometimes some free advice

for a client pays huge dividends in the long run. anyway we dont have enough info re the state of affairs to be able to comment further

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By MartinLevin
16th Sep 2011 13:37

The GoodEnglish Professor comments

Thanks are due to JCresswell for asking the simple question "what on earth is a PITA?".  I first thought it was Greek Bread. So, how can this make sense? The upshot is, when Initial Letters are used, they mean nothing to outsiders.  The premise that "this saves time" is ridiculous.  They waste time, as more time is expended in trying to unravel the mess they create.  We are a forum for, supposedly, professional people.  Let's have proper English (and use spell-checker as well), please, as well as proof-reading, before posting.

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By Mouse007
16th Sep 2011 13:52

SHID

SCNR

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Replying to justsotax:
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By MartinLevin
16th Sep 2011 16:21

SCNR - undefined - thus proving my point

 

AcronymDefinitionSCNRSorry, Could Not ResistSCNRSomatic Cell Nuclear ReplacementSCNRSignal to Clutter plus Noise RatioSCNRStudent Commitee for National Reconciliation 

 

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By ShirleyM
16th Sep 2011 14:24

@MartinLevin

Just do what the rest of us do ... if you don't know what it means, just ask, or look it up, but to make it easy for you I have provided a link ......

http://acronyms.thefreedictionary.com/SHID

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By carnmores
16th Sep 2011 14:29

what is proper English

?

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By MartinLevin
16th Sep 2011 16:15

The GoodEnglish Professor replies:

Thank you all for bothering.  My point is that TIME IS WASTED rather than SAVED by using initial letters (and looking them up, if necessary).  If we charge for our TIME, shouldn't we use it more wisely than using nonsensical abbreviations - or would you rather learn Serbo-Croat?

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By ShirleyM
16th Sep 2011 16:19

WHOSE TIME?

You could say that we all waste time by trying to help other people with their queries, but I guess most people appreciate the help we give. Should we charge for our time?

I've never tried Serbo-Croat. Is it more difficult than acronyms?

Ah well ... it's the weekend, 'ave fun evry1 :)

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By petersaxton
16th Sep 2011 16:20

nonsensical?

The vast majority understand PITA so it could be argued that using it saves time.

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By petersaxton
16th Sep 2011 16:28

undefined?

Isn't it over defined?

Using common sense I know which I would judge it to be.

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By Mouse007
16th Sep 2011 16:33

SOHF

Mulitple choice question:

In context was SCNR

A Sorry, Could Not Resist

B Somatic Cell Nuclear Replacement

C Signal to Clutter plus Noise Ratio

D Student Commitee for National Reconciliation

 

 

 

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By thisistibi
16th Sep 2011 16:34

@Mouse007

Is it B, Somatic Cell Nuclear Replacement ?

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By ShirleyM
16th Sep 2011 16:37

How about ...... SFTFHYT

Sorry, FirstTab, For Hijacking Your Thread

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By Caber Feidh
16th Sep 2011 16:55

Use of acronyms and prosecution for non-payment of VAT

The simple rule of thumb is that you should only use an acronym in a context where it will be unambiguous and will be understood by all (or almost all) of your readers. If your acronym will not, then teach it to the AutoCorrect facility in your copy of Word and let AutoCorrect expand the acronym as you type. I use over a hundred abbreviations because I am not a touch typist - but typing errors can then produce weird results.

To take one example of acronym ambiguity: I have used SAR professionally, in different contexts, for synthetic aperture radar, specific absorption rate and subject access request. I may be the only contributor to this site who has used one of Martin Levin's examples professionally, namely Signal to Clutter plus Noise Ratio. Hint: it was in the same context as synthetic aperture radar.

To return to the original topic of this thread. If FirstTab's PITA persists in failing to pay his VAT, I would expect HMRC to prosecute him and add a criminal record to his woes. ShirleyM's opening advice of involving an insolvency practitioner seems very sound.

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By Mouse007
16th Sep 2011 17:01

JAM

Why would the Health Management Research Center do that?

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By wingco44
17th Sep 2011 19:48

Acronyms

Mouse - Surely, that should be 'Centre' - SCNR !!!

As an ex miltary person, I was always taught to use the full title or words the first time you use it with the abbreviation or acronym in brackets, but only if you intend to use it again.  I hate it when people do it th other way round; putting the abbreviation and then explaining it in the brackets WACWOFT (What a complete waste of time).

Using more specialist acronyms does certainly waste time but worse, it can hinder understanding and divert attention away from your point.

And what ever you do, do not put SCNRL (I added an 'L' by mistake)  into Google.........which most of you are now doing.

 

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Replying to User deleted:
By Mouse007
17th Sep 2011 22:19

AFAIK

wingco44 wrote:

Mouse - Surely, that should be 'Centre'

Not according to the University of Michigan.

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By wingco44
18th Sep 2011 00:08

University of Michigan

Mouse - unfortunately that University can't spell color, humor, neighbor, theater, flavor, or liter either.  I prefer the Oxford English Dictionary version.

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By petersaxton
18th Sep 2011 09:12

Which English?

Isn't AccountingWeb's preferred language American English?

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By Caber Feidh
18th Sep 2011 14:38

The preferred English depends on where you reside

I expect www.accountingweb.co.uk to use genuine English, to discuss UK accountancy, and www.accountingweb.com to use American English, to discuss US accountancy.

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By petersaxton
18th Sep 2011 15:41

That would make sense ....

but why does accountingweb.co.uk give errors when UK English is used but not American English?

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