Cycle Retailer Hit By Slow Moving Stock and Poor Capital Controls

The Challenge

A London-based specialist cycle retailer, with a history of steady growth and sales of £2.5m, ran into financial trouble in late 2017. The problems stemmed from a difficult trading period, a working capital deficiency, cash tied up in slow-moving stock, and a lack of sound financial management. Initially, the company’s main issue was a large debt to a key supplier, but this was compounded two months later by the discovery of a significant, previously unknown VAT liability and a disappointing second quarter of trading in 2018.

The Solution

The company first engaged RMT KSA to conduct an Independent Business Review. This comprehensive review analysed every aspect of the business, from marketing to management and finance. Financial forecasting was used to see what would be a sensible, realistic monthly repayment plan to offer its primary supplier (owed £700k debt). After much negotiate an informal 60-month repayment plan was agreed. However, after the new VAT liability was discovered, RMT KSA recommended a more comprehensive solution: a Company Voluntary Arrangement (CVA). This approach would include all unsecured creditors, including the key supplier.

The Results

The CVA proposal was put to creditors, offering a repayment of 50p in the pound over five years. Despite the fact that HMRC and one other creditor voted against the proposal, the CVA was approved by a majority of 81.5% of creditors (by value). The company formally entered the CVA in January 2019, allowing it to restructure its balance sheet and stabilise its financial position. The CVA successfully dealt with the company’s total unsecured debt of approximately £1.3m, providing a path to continued trading.