Business Issue: 

The owners had a standalone European Student Development business, when the group Financial Controller left it came to light that there were a lot of accounting issues for this group and that there was little understanding of its cash needs as well as where each of the European entities was in terms of its legal and statutory obligations. 

Background: 

The business owners had several student property companies, the main one operated in the UK and they also had a European business which had historically purchased and sold a property in Holland. They had legal entities in Luxembourg, France, Holland and Germany which were set up in order to seek opportunities to purchase land/properties with the view to developing them into student accommodation. These entities were cost bearing and used Local Service Providers to keep the accounting records and filings in France and Germany a part time employee in Luxembourg, the Dutch entities book keeping was done in Manchester using Sage 50. All payments were made by the UK based FC. 

Challenge: 

After the Financial Controller left the organisation it became apparent that they had not been keeping on top of the European business. There were 3 main problems 

1. No dialogue with the Local Service Providers 

2. No support for the part-time employee in Luxembourg 

3. No record keeping for the Dutch business for 2 years. 

There was also a potential tax issue where 2 of the entities were trading with each other but were in 2 different European jurisdictions. 

This gave rise to challenges in each area: 

1. The company had no idea whether or not it was up to date with its legal obligations in these regions or what the accounts/management accounts looked like or cash requirement was. There was also a large Corporation Tax assessment on one of the entities as the Local Service Provider had submitted the return without seeking the advice of the FC even though the business had taken advice which stated that there would be no tax liability. 

2. This resulted in no management accounts being produced or any idea of future cash requirements for the business 

The company had no idea what supplier invoices were outstanding or whether it was up to date with the various tax and accounting filings and what the future cash requirements may be. 

Solutions: 

First was to implement a European cash-flow that forecast all future cash payments by country showing when each entity would need to draw down cash from its parent, and also provide the correct mechanism for transferring monies across Europe. Next was to go and meet with the local service providers in Europe to ensure that their data was accurate, find out where the company was in terms of meeting its legal obligations and to set reporting deadlines and processes. And in the case of the entity with the tax liability, get the LSP to submit the correct tax return for the period therefore eliminating the tax liability. 

I then set about updating Sage for the Dutch entities, ensuring the creditors ledger was accurate by requesting supplier statements and copy of outstanding invoices and reconciling the bank accounts. I also put in place payment plans with suppliers where the company owed substantial sums to pay down the overdue debt in a way that would not create a cash flow problem for the group. Next was to train the part time accountant in Luxembourg and coach them through the Sage year end process. 

Benefits: 

Not only did the business now comply with all the relevant filing deadlines across Europe preventing future fines and penalties but the company was also able to budget for the cash required from the parent in order to make supplier payments on time and avoid costly interest charges. It also meant that the company now had up to date management information across Europe enabling the owners to make better strategic decisions. 

Case Study: Scott Burton