Risk Assessment: MY COLLECTION LIMITED (06824178)

1. Risk Rating: MEDIUM-HIGH

Justification: While the company demonstrates consistent profitability and growing net assets over a 16-year trading history, there are significant warning signs in the cash flow profile. The 85% depletion of cash reserves over two years, combined with a concurrent 69% expansion in debtors, presents a classic pattern of potential liquidity stress. Off-balance-sheet lease commitments substantially exceed the company's net worth, and related party transactions require scrutiny.

2. Key Concerns

Concern 1: Severe Cash Deterioration

The most pressing red flag is the dramatic decline in cash reserves: - 2023: £51,960 - 2024: £35,493 (−32%) - 2025: £7,636 (−78%)

This represents an 85% decline over two years. With current liabilities of £49,011 and cash of only £7,636, the cash ratio stands at approximately 0.16 – critically low for meeting near-term obligations. The company is heavily reliant on collecting £72,592 in debtors to fund its operations and creditor payments.

Concern 2: Debtors Expansion vs. Cash Contraction

The inverse relationship between debtors and cash is concerning:

The 161% increase in "Other Debtors" is particularly noteworthy. This category often includes inter-company balances, and the accounts reference a related party relationship with Vision Imaging Limited (where Mr and Mrs Imison are also directors and shareholders). The debtors figure may include amounts owed from this connected entity, which could mask the true collectibility position.

Concern 3: Off-Balance-Sheet Lease Commitments

The company has non-cancellable operating lease commitments totalling £123,625, broken down as: - Within one year: £7,000 - Between one and five years: £28,000 - More than five years: £88,625

These commitments are 4.3 times the company's net assets of £29,045. While the company appears asset-light due to operating leases (consistent with portrait photography potentially utilising studio space), the long-term nature of these obligations represents a significant fixed charge on future cash flows. The identity of the lessor and whether this is a connected party should be investigated.

3. Positive Indicators

Established Trading History

Incorporated in 2009, the company has operated for over 16 years, suggesting resilience through multiple economic cycles. Longevity in the photographic services sector indicates a sustainable business model and established client relationships.

Consistent Profitability

Retained earnings have grown every year since 2021: - 2021: £5,381 - 2022: £9,724 - 2023: £14,293 - 2024: £22,339 - 2025: £29,041

This demonstrates the company is generating profits, not merely surviving on cash reserves. The £6,702 increase in retained earnings for 2025 represents a healthy return relative to opening equity.

Debt Reduction

Long-term bank loans have been substantially reduced from £11,127 to £2,253, indicating active debt management. Total bank debt (current and long-term) stands at £11,127 – manageable relative to the asset base.

Regulatory Compliance

Accounts and confirmation statements are filed on time with no overdue indicators. The company engages a professional accountancy firm (Walkers Accountants Limited) and produces full (albeit unaudited) financial statements under FRS 102 Section 1A.

4. Due Diligence Notes

Priority Investigations

A. Related Party Transactions The accounts reference Vision Imaging Limited as a related party, with an amount included within debtors (the text is truncated). This requires immediate clarification: - What is the exact balance owed by/from Vision Imaging Limited? - Is the "Other Debtors" increase of £23,426 primarily related to this entity? - Are there any corresponding creditor balances? - What is the financial health of Vision Imaging Limited?

B. Debtor Collectibility Given that debtors now represent 90% of current assets, the age profile and recoverability of these balances is critical: - Request an aged debtor analysis - Understand the nature of "Other Debtors" and why it has increased by 161% - Assess whether trade debtors include disputed or long-overdue amounts - Determine if any provisions against doubtful debts should be made

C. Cash Flow Sustainability With only £7,636 in cash against £49,011 in current liabilities, the company's working capital position requires scrutiny: - Obtain monthly management accounts to understand cash flow seasonality - Review bank facility arrangements and any overdraft limits - Assess whether the cash decline is part of a deliberate strategy (e.g., investing in working capital) or symptomatic of operational stress

D. Lease Commitments The £123,625 in lease commitments requires clarification: - What assets or premises are being leased? - Is the lessor a connected party? - What are the break clauses or termination provisions? - How do these lease costs compare to revenue?

E. Persons with Significant Control Four PSCs are identified, including Mr John Perry and Mrs Lindsey Perry who do not appear as directors. This raises questions about: - The nature of their control (shareholding vs. voting rights vs. other influence) - Whether there are shareholder agreements that could affect decision-making - Potential for disputes or governance issues

F. Revenue and Profitability Metrics The filed accounts are filleted (income statement not delivered), which is permitted for small companies but limits analysis. Request: - Turnover figures and trend - Gross and net profit margins - Comparison to industry benchmarks for portrait photography (SIC 74201)

G. Fixed Asset Requirements Tangible fixed assets have a net book value of only £100 (cost £9,446 less depreciation £9,346). As a photography business, the company likely requires significant equipment investment. Investigate: - Whether assets are being replaced via leasing or hire purchase - The age and condition of existing equipment - Future capital expenditure requirements

H. Industry Context Portrait photography faces structural challenges from smartphone cameras and AI-generated imagery. Assess: - The company's competitive positioning and differentiation - Revenue trends and client retention rates - Whether the business has pivoted toward higher-value commercial work