Investment Risk Analysis: RJM Contracts Limited

1. Risk Rating: HIGH

Justification: While the company shows surface-level improvement in net assets over recent years, the FY2024 balance sheet reveals significant structural concerns. The 324% explosion in debtors, a 157% increase in current liabilities, declining cash reserves, and substantial directors' loan advances collectively present a concerning financial profile that warrants elevated risk classification.

2. Key Concerns

Concern 1: Debtors Concentration and Collectability

Debtors have surged from £435,908 (FY2023) to £1,850,103 (FY2024) — a £1.41M increase representing approximately 95% of total current assets. This level of debtor concentration creates significant doubt about cash conversion and potential bad debt exposure. If even a modest portion of these debtors proves irrecoverable, the company's net current assets position (£310,964) would be severely compromised. The abridged accounts provide no breakdown of debtor ageing or provisioning, which limits assessment.

Concern 2: Directors' Loan Advances

During FY2024, the directors drew £147,486 in advances, bringing the total outstanding balance to £252,059 — approximately 81% of shareholders' funds (£312,235). This represents a substantial extraction of value from the business and raises questions about: - The prioritisation of personal liquidity over corporate reinvestment - The recoverability of these loans from the directors - Whether these advances are effectively disguised remuneration

The lack of any repayment during the year is notable.

Concern 3: Current Liability Expansion and Cash Deterioration

Creditors due within one year have increased from £637,064 to £1,636,202 — a near tripling that outpaces asset growth. Simultaneously, cash has declined from £159,130 to £83,563 (a 47% decrease) despite the significant debtor book. This suggests the company may be extending credit to customers while stretching supplier payments, a classic working capital stress indicator.

3. Positive Indicators

• Longevity and Continuity: The company has traded for 15+ years since incorporation in 2009, demonstrating operational resilience through multiple economic cycles.

• Net Asset Growth Trajectory: Net assets have improved from a perilously thin £886 (FY2020) to £312,235 (FY2024), suggesting cumulative profitable trading over recent years.

• Regulatory Compliance: Accounts and confirmation statements are filed on time with no overdue status, indicating adequate administrative governance.

• Real Operating Business: 14 employees and tangible fixed assets (£12,377 net book value) confirm this is a genuine trading entity in electrical installation, not a shell.

• Related Party Income: £86,532 in management fees from RJM Projects Limited provides a recurring, if related-party, revenue stream.

4. Due Diligence Notes

1. Debtor Verification: Request a full aged debtor schedule and assess the concentration — what percentage is attributable to a single customer or related parties? Determine whether the £1.85M includes any related-party balances beyond the disclosed RJM Projects Limited intercompany receivable of £43,252.

2. Directors' Loan Terms: Obtain the terms of the £252,059 directors' loan — specifically interest rate (if any), repayment schedule, and whether it is secured against company assets. Confirm whether these advances have been formally documented.

3. RJM Projects Limited Cross-Guarantees: Investigate whether RJM Contracts Limited has provided any guarantees or security on behalf of RJM Projects Limited (where Mr. Morrison is also a 50% shareholder and director). Assess the financial health of that related entity.

4. Current Liabilities Composition: Request a breakdown of the £1.636M current creditors — specifically the split between trade creditors, HMRC liabilities (VAT, Corporation Tax, PAYE), and accruals. Tax liabilities would carry priority status in insolvency.

5. Profit & Loss Performance: The abridged filing means no income statement is available. Request turnover and net profit figures to assess margins and determine whether the debtor growth is proportionate to revenue growth or indicates collection issues.

6. Stock Reduction Context: Stocks have dropped from £220,907 to £13,500. Clarify whether this reflects a deliberate business model shift (e.g., moving to a contracting model with less materials holding) or potential stock write-offs.

7. Long-term Creditor Identity: The £11,106 in creditors due after more than one year (down from £30,083) should be identified — if these are director-related, this affects the true net position.