How RJF helped turned a business around – A case study

Several years ago a client came to RJF in severe difficulty with HMRC. They owed in excess of £250,000 and were struggling to pay.

On the face of it, the business looked great, they had a good brand, some big-name clients and great recurring revenues.
Staff turnover was low, loyalty was high and people wanted to work there.

But when you started to look under the bonnet and really dig down, it became clear that finances and cash flow were in a very poor state (hence why they were being hounded by HMRC for a quarter of a million pounds of tax.)

Even the best business with the best service, staff and culture can become severely disabled by unstable finances. A solid financial foundation is absolutely essential for sustainability, growth and long term success.

What did RJF do?

The first task was to keep HMRC away. They were becoming increasingly aggressive, threatening administration and hounding the business owner constantly.

How did it get to this situation? Unfortunately, the business owner was burying his head in the sand and just ignoring it which HMRC do not like and they often then turn aggressive.

So we started to open dialogue with HMRC and asked them to agree to a payment plan. But before they would consider it, they wanted to see cash flow projections, a business plan moving forward and a proposed instalment plan to pay what was owed.

Our first task was to lay the groundwork within the business finances. A new accounting system was put in place and other procedures were implemented to ensure the business owner had good visibility on cash flow and profitability.

Once complete, we constructed a detailed cashflow analysis and payment plan proposal to present to HMRC.
The work and preparation paid off – HMRC agreed to an 18-month payment plan based on our forecasts and affordability. (18 months was a great result, the norm is usually 6 or 12 at a push!)
That really helped the business in terms of cash flow allowing us to breathe, take stock of the situation and look towards growth once more.

Now with the new processes and software, we had better visibility on cash flow and profitability, we started seeing things we wouldn’t otherwise have seen.

For example, we discovered that one big client looked as if they were contributing a lot to the business. They were yielding the highest turnover but actually were one of the worst for profit.
The business was over-servicing the client, spending lots of hours delivering the work.
Other smaller turnover clients were far more profitable.

Having that visibility changed the approach and strategy. Now the business could focus on getting more clients that maximised profitability and not just turnover.

Remember: Turnover = vanity, Profit = sanity BUT Cash = reality!!

Time to grow

With the tax bill under control and an achievable payment plan in place is was time to look towards a growth strategy and move towards raising some finance.

The choices are usually, debt or equity. We analysed the pros and cons of both based on the current business position and in which direction we wanted to drive the company.
After deliberation, we decided to go down the equity path. We wanted to find a great partner as well as funding which of course you don’t get with debt, so decided to go the VC route and started a fundraise.

Going out to the market to get funding can be daunting. Fortunately, at RJF we have years of experience and so know how to prepare and what to look for:

At a minimum you need:

  • A good solid financial base
  • A great business that delivers the results
  • Well prepared for due diligence
  • Well prepared for any questions

Having all these in place and being able to respond to VC requests in a timely manner gives the VC comfort and shows them you are well prepared and serious business.

Within a short period of time and after a due diligence process we were able to secure the funding with a great VC. Having those systems in place allowed complete transparency and visibility which really helped the VC feel confident and comfortable.

Having RJF involved allowed this business to not only survive the threat of HMRC attack but now able to thrive, get significant investment with an excellent partner and look forward to future growth.

If you’d like RJF on your side, get in touch today and let’s see how we can help.