Supersonic your business by doing what Kirk James did. Outsourcing his finance department. Kirk came to us in the Summer of 2019. Having an old-school accountant wasn’t going to work for him anymore. Not with the plans he had to grow the business, buy a property, and sell the business. Brenda and the team here got stuck in. Everything was running like clockwork until it wasn’t. We’ll look at
- Recap
- Disaster strikes
- Relationship with your accountant
- We can help
- Things get worse
- Keeping track of the numbers
Recap
Kirk didn’t need an in-house bookkeeper or finance person. We were that team for him. Payroll, VAT, management accounts, tax returns, and annual accounts all looked after by us. We set up a holding company above the existing trading company. On a future sale of that trading company, the money would go into the holding company with no Capital Gains Tax. That would allow him to invest in the other high-potential trading subsidiary that we set up for him.
Intervening years
Kirk became a client in the Summer of 2019. It took a few months to get a flow to the bookkeeping process. Business continued to be strong, even in the Covid years, as there were a lot of digital grants available. His company bought the property it was renting in 2022, and we helped with that. As we roll into 2023
Disaster Strikes
It is February of 2023, and disaster strikes. There is a data breach, and a client takes a case against the business. Kirk’s heart sinks like a stone when he reads the letter from the client’s solicitor. He has never faced anything like this before. A complete trainwreck, and the future of his business depends on the outcome. This could clean out the business of all the retained cash and assets. How to even get his head around this. What can he do? How can we help?
An event like this is very traumatic for a client. I can only imagine if something like that happened to our business. And then I remember that it did. But not only our business, but thousands of businesses across the country. Covid. And even though Covid was traumatic, there was a sense that we are all in the same boat, so we are in this together. Plus, there was a lot of government support at the time with wage supports, grants, and debt warehousing. There is no support for something like this. This was personal.
Relationship with your accountant
I view the type of relationship you have with your accountant a bit like investment performance. When your pensions and investments are going up, everything is good and there are no issues. But when the stock markets drop by, say 30%, does your pension drop by that amount too? Or is there a fund there that still performs well and remains resilient when everything else is falling? There are such funds, and some accountants like that too. Accountants who perform for you in times of crisis.
I would like to think we are one of those. These are the times we need to be there for our clients. Available to them. To take and return their calls. Lend a sympathetic ear to them, but be honest too. This is serious and not a time for sugar-coating advice that isn’t helpful. And why wouldn’t we? After all, without good clients, we don’t have a business. The clients have paid us a lot of money in the past, and we want that to continue. Now is not the time to abandon them because it is too much hassle and is too time-consuming
Being honest with the client includes whether there is extra work and what that means for the client in extra fees. But agree that up front and don’t land a client with an unexpected bill. There’s nothing that will make them head out the door faster than the road runner!
We can help
We can help by understanding the position that Kirk is in. This is a case taken against his trading company. His goal is to
- Defend the case and
- Protect the assets in the company
To defend the case, he would need a solicitor and a barrister. The higher the court, the more expensive this will be. The company has retained cash, but will it have enough? That’s hard to judge as we don’t know how long this will drag on for. Plus, legals, in these types of cases, will be on a retainer, so fees accumulate and get very high very fast. We can help here by keeping a very close eye on the numbers to ensure they are going the right way. Future profits will ensure there’s enough cash to pay fees
We can also help by protecting the assets of the company. The plan is to move the assets we can from the trading company to the holding company. These are the trading property and some cash. Moving the cash is straightforward. The tradeco pays a dividend to the holding company. You need to ensure the paperwork is right with company law and tax rules. While you must do a dividend withholding tax [DWT] return, there’s no DWT to pay. Also, it’s important to get the elections right in the Corporation Tax returns of both companies. Poor tax compliance could catch you on this point.
Moving the Property
When moving the property from the tradeco to the holdco, you are looking at VAT, CGT, and Stamp Duty. The key for Kirk is to move the property at no or minimal tax cost. There would be legal fees on transfer, but tax liabilities would eat up vital cash that he’d need to fight the case. Without reliefs, let’s look at some of the tax costs. The company bought the property in 2022 for €215,00. Based on a current valuation, it is worth €250,000
For commercial property, the stamp duty rate is 7.5%
| €250,000 x 7.5% | €18,750 |
Capital Gains Tax on the uplift in value is at 33%
| Current value | €250,000 |
| Less Fees | €4,000 |
| Less Cost | €215,000 |
| Gain | €31,000 |
| CGT 33% | €10,230 |
A cost of over €30,000, in fees and taxes, to move a property from one company to another isn’t a runner. There are reliefs available to cover the taxes. Remember, the holding company owns 100% of the shares in the trading company, and Kirk owns 100% of the holding company. This is a group structure. There is no CGT between group companies once there is a 75% group. Also, there is no stamp duty once there is a 90% holding. Certain other rules apply, and various returns must go to Revenue. Like a Stamp Duty return to claim the relief.
Things get worse
Things get worse for Kirk. The stress of the case has a huge impact on his health. One normal day, he feels unwell, and his doctor sends him to A&E. No sooner is he in there, and there’s a team of medics around him. Monitors, screens, drips, concerned faces. This couldn’t be happening on top of all the other issues. All the other issues pale into insignificance. This is my health. Life or death, and there’s no turning back from this if things don’t get fixed soon.
Kirk was having a heart attack on the trolley. His vital signs were so poor the doctors couldn’t understand how he was still alive. With great medical help, he pulled through. And made a full recovery too, but it took a few months. The business couldn’t be his main concern for a while, but he couldn’t wash his hands of it either. He has a good team, and the business would continue with Kirk in the background.
Keeping track of the numbers
Keeping track of the numbers was vital for Kirk with all this going on. The key driver of the business was unwell, so this had an impact. Sales decreased, profits fell, and there were even losses in some months. Kirk knew his monthly costs, so he knew his breakeven point. The business could cope with short-term losses, but it would have to get back to profit quickly. Cash reserves were being eaten up with legal fees.
To reduce his monthly outgoings, Kirk let one of the team go. When his health improved, he started working more hours. The savings, coupled with him back working, helped boost sales and get back into profit. During this time, invoicing on time and cash collection were never as important. Things were tight. But the great thing for Kirk is that he knew the numbers and could make decisions based on up-to-date figures. Doing his accounts 6 months after the year-end would be no help in making decisions to keep his business afloat.
Good news
Kirk has come out the other end, but he has been through the ringer. Business is on the up again. His health has improved, and the case finally got sorted. Brenda, Ger, and the team here gave Kirk huge help during a horrendous time for him. But he could see the value of knowing his numbers during this time. He was in control and was confident that the business decisions he made were based on accurate numbers. He knew his
- Monthly profit or loss
- His wages cost
- His debtors at the end of the money
- How much he owed to creditors
- What he owed to Revenue
- What cash he had
- Sales number
Things are looking up for him again, and that’s brilliant to see. His “supersonic your business” approach helped protect his assets and keep his business afloat. We are part of his business journey and were more than happy to help him out during some horrendous times.
Supersonic your business by outsourcing your finance department. To find out more, start here
