Turnover isn’t everything in business. When an e-commerce client came into trouble with creditors, they came to us for a recovery plan…
In e-commerce, margins can be tight, particularly in the early days. A strong grasp of cash flow and profit and loss is crucial to success in retail. An online fashion company nearly fell foul of poor financial control, but came to us just in time to find a solution…
When our client first approached RJF, she was fighting off creditors demanding £250,000 in combined debt. The cracks in her business model were showing and getting wider. We had to step in and get the brand back to a profitable state.
On the face of it, our client had a healthy business. It was achieving an annual turnover of £2m. But, in fact, the opposite was true. Costs were running away from the team, who had quickly accrued credit card debts amongst other liabilities.
In the fashion trade, many assessments point to whether a strategy is paying off. But our client fell into a trap – the company didn’t have a clear view of supplier deals, bookkeeping, marketing ROI, or how well each debt was being covered.
As a result, creditors were knocking on the door; the business was very close to falling into administration. It was even a struggle to pay staff wages. Drastic changes needed to be enforced. The client had to learn what was most profitable for the brand, whilst maintaining a line of communication to its creditors.
When mapping out a rescue plan, we were upfront about the possible outcome: that administration was a threat, but that we would do all we could to overcome it. It’s never an easy conversation to have, but the client appreciated our candour.
That left us free to work on an accounting system. Buyer controls were implemented, giving the director the final say over any purchase order that surpassed a certain value. Visibility was increased across the business, from statutory obligations (some of which may not have been met at the time) to discounts on bulk investments.
It was found that shoes sold better in smaller sizes. We suggested that buying them as a batch would lower the initial outlay. Furthermore, the client could cut the RRP of the larger sizes so that sales could pick up. No stock should go to waste.
We also looked at their marketing efforts, specifically their Facebook advertising, and presented an existing and forecast ROI to determine where the funds would be best spent.
Additionally, we encouraged the client to speak openly to the creditors. If they knew that repayments would start, even in increments, they’d be much more willing to give the business breathing room to recover so that they could get what they were due.
Having implemented these changes, our client survived the credit troubles, and is today heading a business worth £4m – double the previous valuation. The road ahead is far smoother. Is your e-commerce brand facing similar issues? Contact us today for help.