Risk Analysis: PHILLIP TOM & SONS LIMITED

1. Risk Rating: MEDIUM

The company demonstrates long-term solvency with net assets of £313,577 and a 20-year operating history in the stable funeral services sector. However, persistent negative working capital and concentrated governance present moderate concerns that warrant monitoring. The micro-entity filing status also limits transparency for comprehensive risk assessment.

2. Key Concerns

Concern 1: Structural Negative Working Capital

The company has a consistent net current liabilities position (£148,666 negative in 2026, improved from £199,939 negative in 2025). Current assets of £78,503 are significantly outweighed by current liabilities of £227,166, yielding a current ratio of approximately 0.35:1. While common in asset-heavy businesses, this creates vulnerability to short-term cash flow disruptions.

Concern 2: Declining Fixed Assets

Fixed assets decreased by approximately £86,800 (13.6%) from £636,488 to £549,683 year-on-year. Given this represents 87.5% of total assets, any continued erosion without reinvestment could compromise the company's operational capacity. Without a profit & loss statement, it is unclear whether this reflects depreciation exceeding capital expenditure, asset disposals, or impairments.

Concern 3: Concentrated Control and Key-Person Dependency

Stephen John Tom holds more than 75% of voting rights and the right to appoint/remove directors, while also serving as director. This concentration of control creates key-person risk. With only two family directors and seven employees, the business is heavily dependent on the Tom family's continued involvement and capability.

3. Positive Indicators

• Long-term Solvency: Net assets have nearly doubled from £163,474 (2017) to £313,577 (2026), demonstrating sustained value creation over the decade.

• Improving Liquidity Trajectory: Net current liabilities improved by approximately £51,000 (25.6%) from 2025 to 2026, suggesting active management of short-term obligations.

• Reducing Long-term Debt: Creditors due after more than one year halved from £79,005 to £35,510, indicating successful deleveraging.

• Defensive Industry: Funeral services (SIC 96030) is a stable, non-cyclical sector with relatively inelastic demand, providing operational resilience.

• Regulatory Compliance: Accounts filed on time, company status active, no disqualification records for directors.

4. Due Diligence Notes

1. Cash Flow Verification: Investigate whether the negative working capital is managed through steady funeral service receipts (pre-paid plans, timely payments from families) or through reliance on creditor forbearance. Request internal cash flow projections.

2. Fixed Asset Composition: Determine the nature of fixed assets (likely property and funeral vehicles) and assess their age, condition, and replacement cycle. Clarify whether the decline reflects deferred capital expenditure.

3. Related Party Transactions: As a family-controlled entity, examine whether current liabilities include loans from directors or related parties, which could be subordinated or called on demand.

4. Profitability Assessment: Micro-entity accounts do not require a P&L statement. Request management accounts to assess trading profitability, margins, and the sustainability of the dividend/retention policy.

5. Succession Planning: Given the concentrated control, establish whether succession arrangements exist for business continuity.

6. Accruals and Deferred Income: The £51,933 in accruals and deferred income (down from £65,643) may relate to pre-paid funeral plans. Understand the regulatory obligations under the Funeral Planning Authority and how these liabilities are managed.

7. Creditor Profile: Analyse the composition of the £227,166 in current liabilities to understand payment terms, any overdue obligations, and whether trade creditors are ageing.