Case Study – Vanco Ltd

Vanco Ltd is an established company that has been buying and selling cars and commercial vehicles for over ten years now. Their turnover is in the region of £7.6m and the company is run by two directors; husband and wife, Rob and Rachael.

After working at a large dealership and gaining several contacts in the industry, Rob decided to give it a go on his own. At the time, Rachael worked part-time at a local retail shop. The initial idea was for Rachael to keep her part-time job and to assist Rob with the admin and bookkeeping of the business.

They started out as a small sales garage, selling only commercial vehicles, with Rob as the main salesman and Rachael as a part-time administrator and bookkeeper. They also had one other employee who helped with sales and other tasks within the business.

Within twelve months, Vanco had grown significantly. Following pressure from existing customers, they now sold cars as well as vans, both second-hand and new. They also decided to rent out some of their stock vehicles. Because of the demand, Rob had to recruit two more employees. The company was doing well and turnover was growing rapidly, but with such few members of staff and such high demand the company began to get a bad reputation, as they were unable to deliver the high-quality service they promoted.

It was at this point that the business started to struggle to maintain the financial records of the company. Rachael was now working full time at the business, but most of her time was spent chasing paperwork as well as arranging the collection of vehicles. Unfortunately, this meant that the bookkeeping was pushed down the pecking order and was regularly left until the VAT return submission deadline before the figures were even looked at.

Whilst Rob had a good idea as to how much money was made on each vehicle, he had no idea how many vehicles needed to be sold to break even. He wasn’t even sure how much his regular outgoings were each month.

It was shortly after this period of rapid growth that HMRC decided to review the company’s VAT affairs. The VAT affairs of a new and used vehicle dealership can be very complex. There are special VAT rules for selling new and second-hand cars. For selling second-hand cars, the company must use the Second-Hand Scheme. The taxable date of supply can also be quite tricky to determine. Especially once deposits are considered. There are other factors that can make things quite tricky. This includes how the purchase and the sale were funded, the treatment of part-exchanges, and the VAT consequences of added extras purchased with the vehicle, including road fund licenses, which is outside the scope of VAT.

Following the enquiry from HMRC, Vanco discovered that they were in trouble. They ended up receiving a considerable VAT bill, plus penalties and interest. It was at this point that Vanco approached Smith & Brown to act as their accountants and business advisors.

What Did We Do?

The first thing we did was to get Vanco to sign a form 64-8. This form authorised Smith & Brown to correspond directly with HMRC and deal directly with them for all their tax issues. This included setting up a ‘Time to Pay’ arrangement, which enabled Vanco to repay their VAT liability over several months, which eased their cashflow and also meant that Vanco were not forced into involuntary liquidation.

We provided Vanco with a dedicated accountant to deal with them directly and spent time getting to know Rob and Rachel and how the company operated on a daily basis. We then worked together on how to resolve the company’s problems and develop a structure that could grow and develop the business to make it more productive in a way that Rob and Rachael would be comfortable with and which worked best for them.

We began to work on a structure for the business, starting with the staffing situation. Rob and Rachel employed a receptionist and admin assistant to work alongside Rachel to take the pressure off her. Rob trained the other three members of staff to be salesmen, and we looked after the accounts side of things, including the bookkeeping, the VAT returns, payroll, cashflow forecasts and profit and loss projections.

We introduced Vanco to one of our business mentors from our multi-disciplinary team of experts. The business mentor had been in the same industry as Vanco and had successfully run his own business for a long time. He was therefore able to guide and mentor them to improve and enhance the knowledge and procedures that they already had. This worked well and Vanco benefited from his expertise, help and guidance.

Then we took on a virtual finance director role. As part of this we reviewed their risk management to help reduce the risk of previous problems reoccurring in the future. Other areas we helped with included putting them in touch with a wealth management company whom we work with closely, introducing financial strategy reviews, managing cash flow, attending monthly board meetings, reporting to stake holders and corresponding with the bank managers.

With this structure in place, the company began to regain the confidence of its customers, as they were again able to provide the high-quality service they had started out with. Rob and Rachael were able to concentrate on what they did best, that is, selling vehicles. They had peace of mind knowing that their accounts were in order, they knew where they were up to financially and had a generally better knowledge of their business.

Within the next eighteen months, Vanco Ltd became robust and had grown so much that they were able to recruit more staff and had fifteen members of staff in total. This included an Accounts Department, which Smith & Brown recruited, implemented and managed. Because Vanco had grown to a much larger scale, it was necessary to bring all of their accounting back in-house. This included our in-house IT technicians installing a server in the Vanco office. We also implemented sufficient bookkeeping software, including software that centralised all of their data; from sales and purchases, through to stock control. The software was written so that it could cope with the specifics of the business, including the second-hand scheme.

Throughout the transition, Smith & Brown kept a hands-on approach and managed the whole process, and the dedicated accountant from Smith & Brown has been managing the accounts department from their own desk in Vanco.

In addition to the above, we ensured that Vanco remained up-to-date with the latest technology and reporting that was relevant to the company and the industry they were in. This included putting two TV screens in the offices of Vanco, one in the salesroom, showing a list of current jobs, as well as sales targets for the month. This was updated automatically. The other TV screen was installed in Rob’s office. This was the same as the one in the salesroom, so that Rob could keep up-to-date with the movements of vehicles and monitor the sales team. Rob’s screen displayed up-to-date financial information so that he knew the current financial position of the company. The information from these TV screens was also available on Rob’s phone.

What are we doing going forward?

Moving forward we will continue to keep Cars and Vans Ltd up-to-date with the latest technology, ensuring their booking-in systems for the cars and vans are as simple and effective as possible to make sure the customer receives the best possible service, therefore maintaining their now high-quality reputation.

We will continue to manage their accounts department and hold monthly board meetings with Rob and Rachael. With the hands-on approach and our knowledge and expertise, we will continue to review income and expenditure, advising them how they will be able to increase their sales, as well as reducing their costs.

We will remain in the virtual financial director role, which has been a crucial part of the success and progression of Vanco. This includes managing all financial areas as well as making certain commercial decisions. It is our intention to continue with our close working relationship with the directors.

We are now in the process of working with a reputable firm of auditors and have started preparations to hand over completely to the auditors in the not too distant future.

This includes ensuring that their policies and procedures, as well as their system controls, are in place and sufficient for the size and complexity of the business,

Vanco Ltd is now a stable and robust business, thanks to the hard work of Rob, Rachel and our team here at Smith & Brown.

Pointers

  • Vanco Ltd is an established company that has been buying and selling cars and commercial vehicles for over 10 years
  • After a period of rapid growth, Vanco founder Rob and wife Rachael found they were struggling to keep up with paperwork and bookkeeping
  • They were then reviewed by HMRC and hit with a large VAT bill plus penalties and interest
  • They approached Smith & Brown for help and we got them to sign a form 64-8, authorising us to deal directly with HMRC for all Vanco’s tax issues
  • We arranged for them to repay their VAT liability over several months, preventing involuntary liquidation and assigned a dedicated accountant
  • We worked on a structure for the business, starting with the staffing situation, and took on the bookkeeping, VAT returns, payroll, cashflow forecasts and profit and loss projections
  • Then we took on a virtual finance director role, where we reviewed their risk management to help reduce the risk of previous problems reoccurring
  • We introduced Vanco to one of our business mentors and a wealth management company, implemented financial strategy reviews and began managing cash flow, attending monthly board meetings, reporting to stake holders and corresponding with the bank managers
  • Within the next 18 months, Vanco Ltd became robust and was able to recruit more staff, including an accounts department, which we recruited, implemented and managed
  • The company has regained the confidence of its customers, and Rob and Rachael have peace of mind knowing that their accounts are in order, with a better idea of where their business is heading

Apr 14, 2015