How to survive exceptional times - Part 2: The 2008/9 Crash

Following my previous post about the impact of 9/11 on a start-up - predominantly serving the aviation industry. I will now explain more about the next ‘exceptional time’ Haughton Design was faced with – The 2008/09 Crash.

Haughton Design grew steadily on the investment made in developing a slick system and work produced in the ‘down time’ caused by 9/11. There were still some big challenges, a key member of staff left the company to work with our largest client. It halved our turnover and meant a new strategy was required. We diversified into product design and won more large companies as clients. We were on our way again, but the crash of 2008/09 was sudden and unexpected. The downturn it created and lack of demand for design work had a huge impact on the company.

It felt like overnight, but within no time, the phones stopped ringing. Projects fell away and our team of 6 was far too many for the work we had. I struggled on, trying to find work and things to do within the company, just to keep people busy. However, income was almost nil, so HD was haemorrhaging money at an alarming rate. I threw everything possible at keeping everyone employed but it wasn’t enough. Unfortunately, we had two bad debts and after a few months trying to get paid, there was no choice but to write them off.

It was a critical time. Through the bad debts, HD was behind on VAT and PAYE and the money I hoped for had fallen away. I had maxed out my credit card and overdraft paying wages, so I had to make some people redundant and re-mortgage the family home. Financially, it would have been much easier to quit and walk away from the debts which had built up. However, I couldn’t face the embarrassment of living with this, and the effect it would have on my family. Therefore, it was a case of finding whatever work I could and grinding it out to get through. I spoke to HMRC and explained the situation to them, asking them to make an arrangement to pay. Although they applied a huge amount of pressure and the catch-up payments were very high, it allowed a way forward.

It was incredibly difficult to stay motivated, but as mentioned in my previous article, I had a compelling reason to keep going. Without that, an absolute belief that things would turn, and the unwavering support of my wife, I would have given up.

Unfortunately there was no choice but to make redundancies, from the six staff we needed to lose at least 2 people. Some may ask why only make two people redundant if there is no work? Well, on a personal level, telling someone there’s no longer a job is one of the worst things I’ve had to do. It’s awful for the member of staff affected but also for the wider team too, it’s crushing to everyone, in any small business. Also, it’s not easy to find and train good people, it takes a long time to get people fully up to speed and become productive – it means investing in people. Finally, HD earns its fees through its design team. How could the debts be repaid without a team to earn those fees? At the time, the payments for HMRC and credit card company were too large for just myself, and a very small team to repay them.

I believe it’s vital to invest and train people so I decided two was more than enough and any excess capacity should be focused on training. Although we had no cash, I decided to plough on by investing in training people and developing our systems further.

So, what did I learn during this period:

1. That very tough decisions about people’s jobs should have been made much sooner.

2. Despite common opinion, HMRC were supportive and didn’t want Haughton Design to fail.

3. Banks were supportive to a certain extent, but they wanted first charge over my family home. Having a limited company does not provide the protection many believe is there, as they won’t lend without a personal security guarantee.

4. That for most small businesses only a long-term approach works. By focusing on the long-term it was possible to see past short to mid-term issues around cash flow and plot a route through to better times.

5. Despite it being extremely painful, it's vital to keep 'investing' even when there is no cash to do so.

6. That having a supportive and caring partner provides strength when you feel powerless!

My final article will explain what's happened during the Covid-19 crisis. It definitely helps having more experience and being more established when 'Exceptional Times' strike.