Lessons to be learned from Titcheners’ collapse

Titcheners' chairman Roy Ashton

“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

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

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

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

It’s painful – but the best
will survive recession

Related reading