Checking out a company at Companies House

[Alan Ambrose]

This is a useful skill - particularly if you’re making a big payment in advance or there’s a long delay between making a payment and receiving the goods or services. Also check out the various threads on getting credit and delivery protection by using credit cards.

Edited November 20, 2024 by Alan Ambrose

[Alan Ambrose]

Firstly, a deal for goods or services is always with a legal entity usually a limited company, PLC or self-employed individual. Occasionally, say for architects, solicitors etc it’s with a partnership. Your purchase is a contract between you (usually a self build individual) and that legal entity. Why’s that important? That’s the entity you need to deal with for complaints, solicitors letters, and say, county court. For an established business, the legal entity will be at the bottom of their website, on their invoices, bottom of their emails etc. These days though we’re often dealing with somewhat unknowns on Facebook etc. If you can’t figure out the legal entity, that’s a big warning sign. Let’s put aside for the moment all entities but limited companies - those are the entities on Companies House, together with PLCs, which we’ll give a pass to for the time being. What we’re trying to do is build up an overall picture and spot any warning signs.

[Alan Ambrose]

OK so we go to ‘find a company’ and search for the company name:

https://find-and-update.company-information.service.gov.uk

 

The first big warning sign is if on the overview page:

 

- the company doesn’t exist on the companies house database or is shown as a status of dissolved, proposal to strike off, liquidation, or if we check the filing history and it mentions dormant in any of the recent entries. Anything other than Active and not Dormant is a no.

 

- also check how long the company has been incorporated for and there will be an indicator on the overview page if the company is late with the filing of its accounts or ‘confirmation statement’. A company only a few months old, or one that has overdue filings or that has had lots of changes of name might be a concern. OTOH if they’ve been in business for 20 years we might feel more comfortable.

 

- you might expect for most companies (with perhaps the exception of very large companies) that the registered address (i.e. the one for official correspondence) is the same or close to where you expect the company to be based. For a small company this might be their office address or home address or the address of their accountants or solicitors.

Edited November 20, 2024 by Alan Ambrose

[Alan Ambrose]

Next check the People page and check the box for current officers. These are the directors. There are a few scenarios:

 

+ there are say, half a dozen directors with different surnames. That’s probably a company with a properly constituted board.

 

+ there are 3 or 4 directors and some have the same surname. Probably a family business with a proper board.

 

+ 1 or 2 directors with the same surname. Maybe husband and wife, siblings etc.

 

This is all adding to our background picture.

 

Next dial up persons with significant control. This shows you who are the controlling owners. Again you can usually spot whether we’re dealing with a one-man, family, or larger business and also put names to the owners. That might be useful if you need to raise a complaint or go over the heads of some junior staff.

[Alan Ambrose]

Next check the filing history and look at the last set of filed accounts. See who signed the accounts - that’s usually the boss or maybe the financial director. Also note whether they are listed as full, abridged, or micro-entity which correspond to company size from largest to smallest. These roughly correspond to a turnover of <£36m, <£10m and <£600k. A smaller a company is, often the risker it is as it has less resilience.

Now for a quick look at the numbers. We’ll just do a quick glance to start with. Don’t be intimidated, we don’t need to understand every number.

 

Find the balance sheet and the line total shareholders funds and also the two lines above usually share capital and profit & loss or retained earnings. These will be listed for the most recent and the preceding year for comparison.

These give, first off, an indication of size. Does it have say £100, 10k, 100k, 1m or 10m of share capital (initial capital that the owners put into the business)? Each represents a different scenario and a different level of risk for you. Has it built up a healthy level of retained earnings through the years? Is the retained earnings decreasing i.e. did they make a loss last year? Compare the amount of cash you’re thinking or risking as an up front payment with the shareholders funds. If you’re less than 1% say, then you’re probably safe. If you’re, say 50% then you’re a big customer for them and at risk.

 

Then look at the cash number. Is it big and increasing? Decreasing? Virtually no cash in the bank? It’s the cash level (or the lack of it) which is the trigger for liquidation and risk to customer’s (i.e. your) funds.

[Alan Ambrose]

The bigger companies will also have a Profit & Loss statement or P&L. The smaller ones won’t.

 

If there is one, just observe (in the last line of the statement) whether the company is making a profit or loss and whether it is increasing or decreasing. Losses (usually shown with brackets round them e.f. (X,XXX) ) and to a lesser extent decreasing profits are a warning sign.

 

So, to recap, we should have built up an overall picture. We might have major warnings e.g. company in liquidation, general warnings (low cash, decreasing profits, losses) or queries (e.g. doesn’t seem to be based where we thought they were). We might be comforted e.g. old family business, with plenty of cash and a consistent record of profits. At least you will have gained some information to help your judgement, in negotiating terms, or knowing who to deal with if there’s a problem. You’ll also come across as informed when dealing with the salespeople, which might set the right tone for your relationship.

 

There are people who make careers out of this analysis, so there’s more depth which we probably don’t need.

 

Please feel free to add your thoughts, comments, questions, tips, experiences etc.

[Benpointer]

Brilliant!  Thanks Alan.  

 

(Should be a pinned thread maybe?)

[Gus Potter]

What a great piece of advice from @Alan Ambrose

 

Now the next question is how do you find the right SE / Architect / Designer.

 

I'm an SE /  Architectural designer, to be honest I started out as a local builder, went to uni.. learnt about SE stuff. When I look back my education gave me the tools to teach myself.. and that changed my life.

 

 

 

 

 

[Benpointer]

Question to @Alan Ambrose or anyone else who feels able to answer:

 

If, following the advice above, I find the company I am considering committing a fair chunk of up front money to is:

• quite small, 
• reporting regularly and on time,
• only has three directors who are clearly members of the same family,
• saw it's retained earnings fall last year by 15% and
• those retained earnings are only 4 or 5 times the amount I am going to commit for...

By Alan's advice, I should be cautious.  

 

But...   If the company in question (call it A) is owned by, and has a charge due to, an ultimate holding company (call it B) with the same three directors and that holding company's retained earnings are 80 times my required up front financial commitment, and increasing...  Can I then be reassured?  

 

Can company A go bust leaving a trail of unpaid creditors while it holding company B walks away with a big fat pile of cash? 

Edited February 26 by Benpointer

[SBMS]

9 minutes ago, Benpointer said:

Can company A go bust leaving a trail of unpaid creditors while it holding company B walks away with a big fat pile of cash?

Usually yes. It’s one of the principal reasons for holding companies. HoldCo will typically have little to no trading activity and riskier activities occur in its subsidiary trading companies. That being said the holding company may have financial responsibilities to its subsidiaries but these are not mandatory so usually not made. Typical exception would be if trading co wanted to

borrow money - the lender might ask for a cross group guarantee. Especially if the trading company is shifting its profits up to the holding company - which they often do.  
 

Retained funds can often be misleading because of exactly what you’ve described. The cash generating trading company shifts all its profits and cash to its group parent thereby shielding this cash from any trading risk. Doesn’t mean the trading company is in any way small or at risk, just financially prudent. What are You buying and can you escrow the funds with a third party if you’re concerned?

[Benpointer]

11 minutes ago, SBMS said:

Usually yes. It’s one of the principal reasons for holding companies. HoldCo will typically have little to no trading activity and riskier activities occur in its subsidiary trading companies. That being said the holding company may have financial responsibilities to its subsidiaries but these are not mandatory so usually not made. Typical exception would be if trading co wanted to

borrow money - the lender might ask for a cross group guarantee. Especially if the trading company is shifting its profits up to the holding company - which they often do.  
 

Retained funds can often be misleading because of exactly what you’ve described. The cash generating trading company shifts all its profits and cash to its group parent thereby shielding this cash from any trading risk. Doesn’t mean the trading company is in any way small or at risk, just financially prudent. What are You buying and can you escrow the funds with a third party if you’re concerned?

The classic - a timber frame.   I will talk to them about risk mitigation options but I assume the up front payments are for materials so I am not sure an escrow would work. 

[Nick Laslett]

@Alan Ambrose, I must have missed this when it was first posted. Great advice. Should be standard practice when you are entering into a contract. 
 

Even though this is something I have done with every company I have used on my build, I still lost the deposit on my doors, because they went bankrupt. Even companies that look sound, can get into trouble very quickly. 
 

Just last week I looked at an online jewellery seller, that was selling counterfeit brand name jewellery. They had a string of short lived companies, that get shutdown when trading standards catch up with them. My wife had ordered what she thought was just a piece of jewellery as a gift for someone,  when it arrived it was an obvious fake. Great if that is what you want, but embarrassing if it is a gift and the recipient knows the cost of the real goods. 

[Benpointer]

I've now spoken to the Commercial Director.  She's talked me through the company structure and history, and given me as much confidence as I am ever likely to receive that this is a long-established ongoing family business in good health.  

 

So I am going to sign up.

 

Thanks all!

[Alan Ambrose]

@Benpointer Apologies, I only just saw your question, for some reason I don’t get the notifications. Sounds like you’ve got more comfortable with the supplier. I think that showing that you have an understanding of their risk situation and asking the right questions may give a supplier the sense that you are the sort of customer who is alert to the situation and therefore someone they don’t want to stiff. An additional strategy is to reduce your risk by negotiating a shorter delivery time or payment phasing that better suits you.

[Benpointer]

7 minutes ago, Alan Ambrose said:

@Benpointer Apologies, I only just saw your question, for some reason I don’t get the notifications. Sounds like you’ve got more comfortable with the supplier. I think that showing that you have an understanding of their risk situation and asking the right questions may give a supplier the sense that you are the sort of customer who is alert to the situation and therefore someone they don’t want to stiff. An additional strategy is to reduce your risk by negotiating a shorter delivery time or payment phasing that better suits you.

Thanks - more good advice.   This thread has helped me a lot, and as you summise I have now got to a position where I have a good degree of confidence in the company concerned.   The risk is not zero of course but it's no longer going to keep me awake at night.  

[SteamyTea]

Excellent @Alan Ambrose.

May have missed it when you mentioned people.

But it is worth seeing how many previous companies they have had. 

 

As for holding companies and family members, there are often tax advantages to these sort of setups. Which may mean they know how to take advantage of the tax system (a well run business), or they are trying to not pay taxes (a bad thing). That may be harder to spot.

[saveasteading]

Good advice above.

It's scary for a contractor too. You do a month's work and invoice less some retention, and carry on working assuming your client will pay.

Then if you don't get the last payment then it's a loss of time and money.

Once the materials are on site the contractor can't take  them back. 

One Client even foolishly told me that he never pays a bill if he doesn't need the supplier again and true to that he didn't  pay the last bill...but being prewarned I had left something crucial undone. It shouldn't be like that.

 

Client and contractor talking about it is useful. Be prepared to pay more often. Eg fortnightly instead of monthly. Even paying for a big delivery the next day.

 

[SteamyTea]

1 hour ago, saveasteading said:

Client and contractor talking about it is useful

Isn't there a protocol for doing this for contracts?

Seem to remember that most industries have formal payment methods as part of the contract.

If a client came to me (in the past when I had to deal with this sort of thing), I would give them more respect as it shows they are serious and professional.