Lessons to be learned from Titcheners' collapse

“There but for the grace of God go I” was no doubt muttered by many senior partners after the tale of the demise into insolvency of ambitious firm Titcheners.

The firm was placed into administration after facing a winding up order from the taxman.

Its acquisitive strategy fell apart as its acquisitions failed to live up to expectations.

Caught in the midst of the recession, the firm’s strategic difficulties were exacerbated by the dire market conditions. Along with 500 firms flagged up as in financial difficulty every month by Begbies Traynor's Red Flag statistics, they have faced banks’ tougher stance on debt, struggling clients and tough competition.

Saddled with debts and increasing costs as revenues decreased in the recession, it reduced staff numbers by 72% to stay afloat.

But with a buyer lined up for the restructured business, HM Revenue & Customs would not wait for its payment until the end of the year when a deal was expected to be struck.

“They seem to have decided, hell or high water, that they’ll pursue [the firm],” Titcheners' chairman Roy Ashton told Accountancy Age. “There has been no quarter given.”

While Titcheners’ problems were not principally down to the recession ­ more the lack of quality of its due diligence work on acquisitions ­ its restructuring and sale would probably have taken place by now and insolvency avoided in more benign conditions.

Firms are still looking to buy up competitors, according to Ronnie Goldsmith of Goldsmiths Group, but a lack of funding has hamstrung the acquisitive ­ leaving them and their acquisitions in dire financial straits.

Those looking for a buyer because of cashflow problems and rising debt have nowhere to turn to, while the acquirers find themselves over-leveraged and banking facilities pulled from under their feet.

“If you’re stuck halfway through building a home, you’re left with no roof,” said Goldsmith.

Good practice management comes to the fore. If firms fail to get a grip with their debtors then the situation can become serious very quickly. “Clients start paying more slowly, and advisers are scared to press them or they’ll leg it. You end up with a year’s turnover locked up when it’s all about managing cash,” said Phil Shohet, of KATO Consultancy.

Many firms fail to follow the “third rule”: a third of turnover should be spent on salaries, a third on overheads and a third for partner profit. “That’s gone to the four winds,” said Shohet.

Begbies Global Network executive chairman Nick Hood warned that smaller floundering firms would have been picked up by bigger players or competitors but, in the current market conditions, that was “less likely”.

Another oddity of the current marketplace is the emergence of “mergers”.
Goldsmith said that firms were looking to merge as equal partners without cash changing hands from one party to the other ­ on the basis that the merged firm could run economies of scale to operate more efficiently.

But he warned that this model was fraught with difficulties, and a dominant firm of the two would emerge.

“I’m very wary of such mergers, who’s in charge?”

Further reading:

Firms struggle to stay afloat

It's painful – but the best will survive recession