Case studies
Industry: Sports & Leisure
Turnover: £350k
Headcount: 5 + contractors as required
In existence: 4+ years
Profitability: Gross profit margin reasonable but inconsistent across services. Overheads too high. Net losses since incorporation, supported by shareholder loan. Seriously impacted in 2020/21 by COVID 19 lockdown
Risks: Liquidity – maintain minimum level of cash flow to remain operational; Operational – ability to remain open. Financial – level of controls over payment process, financial reporting
Growth: Turnover rising in year before pandemic. Sustainable profitable growth yet to be achieved
Other: Accounting system did not agree to statutory accounts over a 4 year period. VAT not reconciled for 4 years. CJRS claims had not taken full advantage of the reliefs available. R&D claims possible on development work over the previous 4 years.
Services provided: Bookkeeping, Accounting, Management Accounts, Cash flow forecasts, Business Plan
Systems: Xero, Hubdoc, Xavier, Telleroo, Expenses, Futrli, Castaway, Power BI, Zapier, Smartsheet, Senta
Focus areas: Immediate improvement in cash flow awareness, controls around payments, the quality of management reporting, investigation into prior period accounts, CJRS claims
Profitability: Business plan brought focus on margins and where improvements should be targeted, including stopping one service line. It also highlighted 3 new services that needed investment and time but would be niche high margin areas within the next 12 months. Focus on generating cash flow throughout, with an acceleration out of lockdown.
There was an immediate saving of £1.5k per month by replacing contract bookkeeper with our service.
Zapier automated the production of VAT invoices from online payment systems integrating with Xero, saving hours of effort per week.
CJRS claims reviewed and immediate revision of £2k claimed, with ongoing improvements.
Risk: Immediate improvement and stabilization in cash flow with actions taken to secure additional funding to cover the 3rd lockdown.
Financial coaching of founder on an ongoing basis has brought tangible improvements in the way the business is run with a clear focus on profitability.
Controlled payment process. Expense claims procedure put in place to ensure process compliant with tax legislation. Statutory accounts and VAT reconciled
Growth:
Business plan set out a path to profitable growth within 12 months with plan, actions and milestones to achieve it.
Industry: Financial services
Turnover: £300k
Headcount: 3
In existence: 2 years
Profitability: Operating costs had been significant since incorporation due to the nature of the industry, where an investment platform and legal structure had to be put in place to facilitate the investment process. Supported by equity investment and shareholder loans. In current year investments were secured with immediate improvement in cash flow. However focus had to be maintained on new investments due to the high costs of securing funds.
No impact of COVID-19.
Risks: FX – Euro and $ funds remitted. Operational – a very complicated business, within a highly regulated industry. Payments control difficult with currency payments and scheduled payments made without reference to the accounting system. Maintaining control over inter-company transactions. Financial – prior year accounts had not been prepared by an accountant. Tax – VAT; client currently execution only services which are exempt, but possibility of additional services that will allow VAT registration.
Growth: Significant prospects for growth. European subsidiary recently opened.
Other: Providing support across technical taxation and financial reporting areas.
Services provided: Bookkeeping, Accounting, with current discussions around implementing management reporting and Virtual FD service to provide greater oversight.
Systems: Xero, Hubdoc, Xavier, Expenses, Telleroo, Castaway, Smartsheet, Senta
Focus areas: Implementation of a Holding company structure to facilitate investments in subsidiaries and make future sale easier.
Profitability: Released founder from all time spent on company administration. Simple cost effective service provided. Focus on profitability with implementation of new services.
Risk: Controls tightened across all operational processes. Implemented a new payment process. VAT review undertaken and monitoring of reverse charge invoices incurred. Inter-company process and reconciliation implemented.
Growth: Set up and managed bookkeeping and accounting for Dutch subsidiary as well, and Holding company structure on track.
Industry: Financial services
Turnover: £150k
Headcount: 3
In existence: 4 years
Profitability: No longer an issue. Company had ceased trading.
Risks: Operational – company closure requires step by step approach. Financial – ensuring all available reliefs taken.
Other: It became apparent that previous accountants had not submitted the Corporation Tax reurm for prior year leaving the client facing penalties and interest. The statutory accounts also had a number of discrepancies.
Services provided: Accounting & taxation
Systems: Xero, Inform Direct, Taxfiler
Focus areas: Dealing with prior year issues and completing the closure of the company
Risks: Prior period corporation tax returns submitted. Dividends taken in prior year up to £2,000 to minimise final tax liability. Steps taken to close company with final distribution below capital gains tax threshold so no tax liability due. Company successfully closed at Companies House.
Industry: Professional services
Turnover: £60m
Headcount: 100+
In existence: 15+ years
Overview: Private equity backed group undergoing rapid organic growth and growth by acquisition
Profitability: EBITDA under pressure to maintain debt interest and bank covenants. Pressure to sustain cash flow to allow continued expansion and service the debt. Some acquisitions performing below expectation, with integration still ongoing.
Risks: Compliance & Legal – highly regulated industry with the need to maintain regulatory capital and comply with client money rules. Financial – exchange rate risk, for the transfer of funds across jurisdictions, and reporting of earnings. Financial – new and complicated IFRS (accounting standards) coming into force. Financial – managing flow of cash across jurisdictions and avoiding withholding tax issues and trapped dividends. Credit risk – poor debtor collection in some areas. Funding risk – meeting buyout payments across a number of years from current EBITDA.
Other: Rapid expansion had left a small Finance team in the main location unable to operate as a Group Function.
Over a 3 month period implemented a number of improvements to effectively establish a Group Finance function
- Implemented a new Board report to focus on the key issues of performance, profitability, cash flow and risk
- Developed a new Group reporting pack that was rolled out to all jurisdictions to support this
- Developed and managed monthly Group cash flow forecast to facilitate the month-end transfer of funds
- Developed a Group forecast model
Completed impact assessment and implementation planning for IFRS 9 and IFRS 15
Senior management were made aware of the key business issues and risks and they were able to take the actions required in a timely and controlled way.
Finance was brought to a more professional level, and was able to support Group reporting going forward.
Industry: Holding company with companies involved in technology, financial services and health care and others
Turnover: £30m
Headcount: 50+
In existence: 10+ years
Overview: AIM listed group. Significant public scrutiny due to private investor losses following collapse in share price. Sale of 90% revenue and profit division left 13 disparate companies and a disjointed Finance function.
Profitability: All 13 companies were loss making. At different stages of company development and potential with a varied range of managerial ability.
Risks: Reputational – press and investor interest. Financial – exchange rate risk, for the transfer of funds across jurisdictions, and reporting of earnings. Financial – history of material prior year adjustments due to the complexity of transactions and the lack of transparency across the Group. Tax – a number of tax avoidance schemes now disclosed to HMRC. People risk – high staff turnover. Product risk – continuing development expense on untested technology. IT risk – disjointed systems across the Group. Strategic risk – lack of an overarching to create value for shareholders. Capital risk – cash available to return to shareholders, subject to court confirmation. Tax – tax losses availability.
Other: Time pressures on a listed group to report developments in a rapidly changing environment.
Over an 18 month period
- Worked with the CEO and Group CFO to sell or close 11 of the businesses and to concentrate on the 2 remaining businesses with potential to invest and develop value with a view to future sale
- Completed a court process to return £400m to shareholders
- Managed the closure and sale of Group headquarters
- Maintained AIM financial reporting throughout the period
A complete transformation of a £30m listed business.
Realisation of remaining value for shareholders.
Industry: Professional services
Turnover: £7m
Headcount: 50
In existence: 19 years
Overview: Private equity investment 2 years previously to fund an MBO. Group now targeting strategic acquisitions across specific geographies and sectors to allow a PE exit in 2 – 3 years.
Profitability: Strong EBITDA and cash generation. High interest rates on investor debt putting pressure on net profitability
Risks: Funding – focus on generating cash to meet existing but out commitments along with interest payments. Operational – people with the skillset to meet challenges of rapid expansion. Integration brings new challenges of culture, systems and process. Highly regulated industry.
Growth: Stable client base but little organic growth over the previous 12 months. Focus on growth through acquisition and value creation through synergies.
Other: Pressure from PE investors to have the level and standard of financial reporting that they expected from a portfolio company. In particular in relation to the Board and investor reports and cash flow forecasting.
Part-time over a 6 month period
- Developed a new Board report. It concentrated on the key performance indicators in the business, financial and non-financial. It was also forward looking, projecting cash flow and profitability 12 months forward, with an in depth look at the business pipeline, and analysis of the competitive environment.
- Implemented a new Business Planning process, with a top down and bottom up approach. All operating entities were modelled for a 4 year period, with billing profiles taken to ensure cash flow projections were accurate. 3 way budgets (Income statement, balance sheet, and cash flow) at operating entity and consolidated levels, with placeholders for acquisitions
- Implemented a finance systems review with specific criteria or evaluation to rationalize the numerous systems in use across the Group
- Implemented a methodology to ‘professionalise’ Finance involving process and controls with embedded procedures, and training in soft and technical areas.
The Board now focuses on business performance and not the validity and omissions of the reporting they review. Investors also receive the level of detailed reporting required.
Finance has embarked on its own transformation incorporating people, organisation, process and technology.
The Group has the confidence to look at further acquisitions with the confidence that the infrastructure is in place to support them.
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