A London recruitment consultant was established largely to place analytics professionals within the financial technology sector. The initial funding for the firm was achieved through a share issue and an unsecured loan from an investor. From then on, it was about trying to grow as there was no overdraft facility available and the business was reliant on cashflow to survive.

Premises were found in London serviced offices and every effort was made to secure clients through networking and recommendations. Recruitment requires high levels of servicing and additional staff needed to be employed. But, there were cashflow restraints and additional working capital could not be raised.

Recruitment-Consultant-Case-Study

Too junior

This meant the managing director could only afford to take on young and fairly inexperienced consultants, rather than top flight fee earners who could have brought more business with them. This held the business back and growth faltered.

There was a further problem in that the business chose to hire low cost, out of town accountants. The reasoning for was that the managing director hoped his investor would provide advice on the financial management side of the firm.

However, there were shortcomings here and the managing director decided to recruit a finance manager who would introduce improved cost controls through monthly reporting, which would ensure that HMRC returns were compliant.

Errors cost

By then though, problems that had either been pushed to one side or had not been brought to light surfaced. It was found there were inadvertent bookkeeping errors and this meant VAT liabilities of in excess of £190,000.

Immediate steps were taken to negotiate a ‘time to pay’ agreement with HMRC, but the company found it was unable to meet the suggested monthly repayments and keep trading.

Advice was sought from Company Debt and this led to the realisation that the business was not sustainable. An independent valuation was carried out and the firm then placed into creditors’ voluntary liquidation.