THE FRONT ROOM (BUNGAY) LIMITED

Executive Summary

THE FRONT ROOM (BUNGAY) LIMITED is currently experiencing financial distress reflected in negative net assets and working capital deficits, compounded by reliance on director loans. Although improving compared to previous years, liquidity remains a critical concern requiring urgent cash flow management and cost control measures to stabilize operations. With targeted interventions, the company can strengthen its financial health and reduce insolvency risk.

THE FRONT ROOM (BUNGAY) LIMITED - Analysis Report

Company Number: 13278216

Analysis Date: 2025-07-20 13:52 UTC

Financial Health Assessment of THE FRONT ROOM (BUNGAY) LIMITED as of 31 March 2024

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1. Financial Health Score: D

Explanation:
The company exhibits several symptoms of financial distress, including persistent negative net assets, recurring working capital deficits, and reliance on director loans. While there is some improvement from the previous year, the overall financial condition remains weak, indicating a fragile health state that requires immediate attention.

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2. Key Vital Signs (Core Financial Metrics)

Metric	2024 Value	Interpretation
Net Assets (Shareholders' Funds)	-£8,210	Negative net assets indicate liabilities exceed assets—sign of financial weakness.
Net Current Assets (Working Capital)	-£24,506	Negative working capital means short-term debts exceed short-term assets—potential liquidity issues.
Cash and Cash Equivalents	£2,186	Very low cash reserves—limited buffer for operational needs or emergencies.
Trade Debtors	£4,840	Moderate amount tied up in receivables—may affect cash flow if not collected timely.
Trade Creditors	£3,634	Represents short-term obligations to suppliers; manageable but adds to current liabilities.
Bank Loans (Current + Long-term)	£33,272	Significant debt burden; long-term loans reduce financial flexibility.
Director Loans	£27,487	Substantial reliance on director funding, interest-free and repayable on demand—indicates external funding dependency.
Fixed Assets (Tangible + Intangible)	£40,471	Asset base is moderate, but intangible assets (goodwill) are amortizing, reducing net book value.
Amortisation of Goodwill	£2,000 (yearly)	Reduces asset base and signals past acquisition cost being written off—potential impairment risk.
Employee Count	10	Small workforce consistent with small business classification; manageable but impacts expenses.

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3. Symptoms Analysis (What the Numbers Reveal)

• Liquidity Strain: The company shows a persistent negative working capital position (-£24,506), meaning current liabilities outstrip current assets by a substantial margin. This is a key symptom of cash flow strain and difficulty meeting short-term obligations without external support.

• Capital Deficiency: Negative shareholders’ funds (-£8,210) demonstrate that accumulated losses have eroded equity, creating a capital deficit. This is akin to an unhealthy "balance sheet pulse," suggesting the company is "underweight" financially.

• Dependence on Director Loans: With £27,487 owed to directors, the company relies heavily on informal financing. While interest-free and repayable on demand, this funding is a sign that traditional borrowing avenues or internal cash generation are insufficient—similar to needing a "temporary IV drip" for cash flow.

• Asset Composition & Impairment: Fixed assets include goodwill (£13,833 net) which is amortizing annually, indicating the company paid for intangible value that is losing book value. Tangible assets have increased but depreciation is also rising, suggesting the assets are aging.

• Cash Position: Cash held is low (£2,186), a concerning sign of limited liquidity "reserves" to support daily operations or buffer unexpected expenses.

• Improvement Signs: Compared to 2023, net liabilities have reduced from -£28,808 to -£8,210, and current liabilities decreased from £57,427 to £46,264, suggesting some operational improvement or better cost management. However, the company remains in deficit territory.

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4. Diagnosis (Overall Financial Condition)

THE FRONT ROOM (BUNGAY) LIMITED is currently in a financially distressed state, characterized by ongoing liquidity challenges and equity erosion. The company shows a fragile financial system, relying on director advances as a lifeline to maintain operations. Although there is evidence of modest improvement over the prior year, the "symptoms" indicate the company is not yet "out of the woods" and remains vulnerable to cash flow shocks or adverse market conditions.

The business is like a patient with chronic but improving illness: the vital signs are weak but stabilizing. Without targeted interventions, the risk of insolvency or forced restructuring remains elevated.

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5. Recommendations (Prescriptions for Financial Wellness)

Immediate Actions:

• Improve Working Capital Management: Tighten credit control to reduce debtor days and accelerate cash inflows. Consider negotiating extended payment terms with suppliers to ease current liabilities.

• Increase Cash Reserves: Explore short-term financing options or capital injection to improve liquidity "oxygen supply." Prioritize building a cash buffer to cover at least 3 months of operating expenses.

• Review Director Loans: Formalize repayment plans or convert some loans into equity if feasible to strengthen the balance sheet and reduce pressure on cash flow.

• Cost Control: Conduct a thorough review of operating expenses and identify non-essential costs for reduction to improve profitability and cash generation.

Medium-Term Strategies:

• Asset Utilization: Assess fixed assets for underutilized or obsolete items that could be sold to raise cash.

• Profitability Enhancement: Explore opportunities to increase turnover or improve margins, such as menu optimization or marketing efforts, given the take-away food shop industry context.

• Monitor Goodwill Impairment: Regularly review intangible asset valuation and consider whether the goodwill amortization reflects economic reality or impairment risk.

• Financial Reporting & Forecasting: Implement robust budget and cash flow forecasting to anticipate liquidity needs and avoid surprises.

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