Business Insight 66 – Ego (blog & vlog)

It was decided that we would form a new holding company, styled Davies & Tate PLC (D&TPLC). The PLC bit was suggested by Creasy PR; it carried more kudos and whatever the rules were for styling your company that way, we qualified. It was our intention to possibly go public one day anyway so it was formed – it did involve having higher hurdles to leap audit-wise though.

Everything was restructured thus: D&T Plc owned 99% of all the other trading companies (i.e. D&TRWS, D&TI and D&TS), with the remaining 1% owned by me personally. All the existing shareholders (me, Martin, Paul, and Tony) swapped their share in retail for the same in Plc. Most of the valuable assets were owned by D&TRWS and it was thought that it should stay that way for the time being, as transferring them to Plc would create a notional distribution or other tax problem.

By now with all of this expansion and unexpected costs, the company had gone from being a very cash positive organisation to being a big borrower: £400,000 on term loans for all of the property acquisitions, as well as a £400,000 overdraft facility. I asked our accountant at the time: ‘If we were so successful (i.e. profitable), how come I seem to have to keep on asking the bank for bigger facilities?’ I know, it seems amazing that I could be so stupid, but I was.

INSIGHT 66:- Overtrading wasn’t really a senior enough term for what I was doing; my insatiable desire to invest in the next idea, expansion, marketing scheme, sports sponsorship, whatever, was overwhelming the company’s ability to generate sufficient cash flow from profits alone. Apart from what we first pitched in with, a few thousand pounds each, no fresh working capital had ever been introduced in the form of shareholders’ funds (only what we could source from profits, customers’ deposits, credit arrangements with our suppliers, or bank borrowing). 

 

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