Real Group Case Study
Real Group Ltd provide psychological training services to the education sector. In January 2013 their Finance Manager resigned and was challenged to find a suitable replacement by the month end.
A Director of the business suggested a call to Insight Associates. As a trustee of another client charity, he had first-hand exposure to the impressive Outsourced Finance Department results and recognised the potential to resolve and improve their accounts structure.
Insight Associates met the Finance Manager in his final week so handover time was minimal. The initial undertaking was to comprehend the existing accounts set up and determine the suitability to the business needs.
We quickly identified ways in which the accounts could be streamlined and presented more effectively and could be easily and regularly reconciled.
Work commenced in January 2013 and with a financial year end of March 2013 Insight agreed to use the existing accounting system for the intervening period.
Waiting those few months gave us the opportunity to really understand what was happening in the business. The existing systems had grown and developed along the way but the Directors were keen for us to start afresh and formulate a completely new accounting structure to reflect the growth they had already achieved and have the strength and agility to incorporate their strategic development plans.
The strong dialogue with the Directors and our own expertise enabled us to determine exactly what information was required for the management and continued development of the business.
We changed the year end to September (making that year 18 months long) allowing time to formulate the best strategy for the business.
We migrated them to our market leading Exchequer accounts platform for the start of the new financial year (October) which was more appropriate to the business needs and worked with all areas of the business to define suitable processes and controls.
Whilst outsourcing wasn’t the only option available to Real Group Ltd we believe it provided the best possible long term solution. Had Real Group employed a Finance Manager we believe it is unlikely they would have made the advances they have done. Real Group continues to believe it made an excellent strategic and operational decision in appointing Insight.
The approach we took was to ask the client what information they needed to run their business, and to use our experience to help them formulate their ideas.
We agreed a new simplified coding system and initiated monthly management accounts that met the business needs efficiently.
By 1st October we were able to give them a calculation for profit and deferred income based on our new model.
The Directors are entrepreneurial by nature with largely academic backgrounds. Our involvement has given them a deeper financial and commercial understanding of their business. They recognise the benefit they get from our involvement and have an appreciation of the disciplines of running a proper business.
Likewise our deep understanding of their business allows us to formulate our own ideas. We then confer with the Directors to see if it gives them sufficient flexibility before implementation.
The strong relationship, regular board meeting style discussions, and our proven track record gives the owners confidence to continue to develop new projects, seeking input from ourselves from conception through to implementation… and we love being part of their team!
Bad Accounts Advice leads to a £700,000 Tax Liability that almost destroys company
In July 2011 we took a call from an Insolvency Practitioner appointed as Administrator to a paralegal/law services supply business.
The business model was straight forward and the client was profitable. Their lack of any significant financial understanding had largely gone un-noticed… until HMRC carried out an inspection.
Poor advice had led to their VAT accounting being fundamentally wrong. No VAT had been paid on retentions and they were exposed to unpaid taxes totalling £700,000 (£600,000 VAT and £100,000 PAYE).
The business owners were surprised at their position and HMRC began a winding up procedure.
As a short term measure, to protect the business, the client was placed into Administration and Insight Associates were engaged to pull together forecasts for a CVA (Creditors Voluntary Arrangement) proposal. HMRC would only accept 100 pence in the £ and a CVA was agreed with the proviso that Insight Associates took over financial management and control of the business.
An alternative solution would have been to liquidate the business… but a service industry business with no significant assets, in rented premises, would not yield sufficient funds to clear the debt. On this occasion the sensible CVA solution was agreed and it was stipulated that Insight produce monthly management accounts for the CVA supervisor throughout the CVA process.
We immediately put some financial processes, controls and approval procedures in place... not to restrain the business but to strengthen it. The owners had a good understanding of money coming in but a poor understanding of money going out. A proper continuous cash flow management system was introduced.
We moved them onto our class leading Exchequer accounting platform and took responsibility for all financial aspects of the business from VAT, Tax and Payroll, through to monthly management accounts.
The client exited the CVA one year early and the delighted Directors are now paying themselves dividends from the profits.
The client retained our services and they continue to receive comprehensive monthly management accounts. They see and understand the numbers including why work in progress and retentions are treated in a certain way within the accounts.
Quarterly board meetings with us give them the opportunity to raise queries and discuss future strategic development plans.
Having the opportunity to turnaround a business of this nature is incredibly rewarding, as is saving a not insignificant number of jobs.
All too often viable businesses disappear into liquidation because financial discrepancies are discovered too late, or when they are found, the business still doesn’t have the in-house financial skills to address them.
We have a great chemistry with our client and because we have a deep understanding of their business model we quickly recognise inaccuracies in figures being passed through to us. Our genuine interest in the success of their business means we will challenge and question those inaccuracies rather than just reporting on them.
Discussion and thoughts on good financial management and issues for UK small business
Any business is only as strong as its cashflow … remember the old addict - Sales are Vanity, Profit is Sanity, Cash Flow is Reality. With the economy slowing down and tougher times ahead, make sure your business is wise and ensure your credit practices are fit for the times ahead.