I knew there was something wrong but couldn’t put my finger on it until July 2002 when I had a letter from solicitors working for HM Revenue & Customs. It said they were winding the company up for non-payment of about £250,000 in VAT. I reckon I was six weeks away from total annihilation, both in terms of the business and personally.
Sheer bloody-mindedness got me through it. This was my company and there was no way I was going to let it be ruined. I had left the accountancy practice I worked for in 1991 and moved into IT for about three years, mostly in sales and marketing. I set up Sunrise in ’94, buying an early auditing package from my previous employer. I used my own funds and my house to cover potential liabilities.
By 1999 we were turning over £3 million and had around 45 to 50 staff. I was looking at how to take the company forward, as you reach a position when you need to plan your next stage of growth, or an exit, or both. So I hired a management consultant – someone who was well recognised in the IT industry – to evaluate the options. He concluded that I should stand back and hire someone who was younger, more dynamic, possessed greater sales and marketing capabilities and lots of other things.
Succession
All the management books I had read gave me the same kind of advice: the entrepreneur or founder is the biggest obstacle to the growth of the company. I took all that on board at the time and used a headhunter to recruit a chief executive. There were about 120 applicants.
This wasn’t a cheap process. The advert cost £27,000 and the whole process probably around £60,000. It turned out the chief exec we hired wasn’t quite what we’d hoped for. Between his arrival and the time he left in 2002 I’d lost £4 million.
It was a case of selling a product before it was ready. Orders were taken from existing customers that were called sales in the management accounts even though nothing had been delivered. Revenue was being recognised and cash collected before the deals had been done.
When I received the letter from HM Revenue & Customs, I sort of resumed control, especially the invoicing. I met with the chief exec and, because our employment laws are so onerous against employers, I had to be careful about how I dealt with him. I got him to agree to a set of conditions and in September 2002 he effectively resigned.
Nasty surprise
It got worse after he left. We owed £1 million to a company in India that did product development work for us. We had concealed the debt by asking the Indian developers not to invoice us for the cost. They had agreed to it on the promise of more business in the future.
I went to the bank and borrowed £1 million based on the security of the house to shore up the company immediately, but it probably wasn’t enough. An insolvency practice advised that a Company Voluntary Agreement was the only logical solution to keep the creditors at bay. I made half the staff redundant within the month and started to put the company on track again.
Keeping good communication with HM Revenue & Customs – who were brilliant – and the VAT office was important. We kept talking to them and every time we promised to pay, we paid them. My bank was fantastic too.
I put a statement out to try and reassure existing customers that the company was moving forward. It’s taken five to six years but today we are turning over around £4 million and we have 45 staff.
I made the mistake of hiring the wrong person and I should have done far more background checking on the sort of person I was hiring. I put my faith in headhunters and management consultants and references, when I should have used a company to get some rigorous, independent verification.
I would urge anybody hiring a chief exec to really go into their background.
