The company was a small but fast-growing, privately-owned IT Cybersecurity Distributor and had recently upgraded from Sageline 50 to the NetSuite ERP system. Having upgraded part-way through their financial year, the accounts team was struggling to reconcile closing balances in Sageline 50 with opening balances in NetSuite. There were also some weaknesses in the NetSuite process to calculate cost of sales, and without a reliably accurate gross margin figure they were unable to report profitability. These two issues combined meant the company was unable to produce meaningful management accounts.
The company received an approach to buy a majority stake in the business and the lack of management accounts could have jeopardised the sale. Without accurate numbers the sale negotiations could not proceed and, if the situation was not resolved quickly, there was a danger the buyer would lose patience with the process and lose confidence in management.
Further analysis showed problems with the company’s VAT accounting; it appeared that the company had correctly accounted for, but underpaid VAT. This situation was a major worry to management and added further difficulty to the ongoing process of selling the company.
We worked with the CEO, Finance Manager and external accountants to understand the issues and quickly resolved the reconciliation issue. With the two systems balanced we moved onto production of the management accounts, setting up templates in MS Excel to bring together the Sageline 50 and NetSuite numbers into a year-to-date P&L.
We recommended some enhancements to the configuration of the NetSuite system to better handle some of the underlying sales and purchases transactions, improving margin visibility for the sales teams and making monthly accounts production easier.
We investigated the VAT issue with the external accountants and found that the issue had arisen when the company switched from cash to accruals basis for paying VAT. We agreed a strategy for paying the VAT due, which the CEO agreed with HMRC, avoiding surcharges.
With the management accounts production issues resolved, the CEO was able to proceed with the sale of the business. We advised the CEO and other shareholders throughout the deal.
The company is now part of a small group of complementary IT businesses and we have continued to support the CEO on ad-hoc projects, including negotiating a debtor financing facility.
“We were having all sorts of problems with the new NetSuite system and the situation became urgent when we were approached to sell a majority stake in the company. Robin helped us to resolve the management accounts issues but also uncovered a historical problem with the VAT.
I was very relieved when we were able to resolve that without any penalties and we were able to proceed with the sale. My fellow shareholders and I were grateful for Robin’s advice throughout the sale process. The business has gone from strength to strength and I have called upon Robin’s help several times since.”
CEO, IT Cybersecurity Distributor
EFM Expert: Robin Draper