Risk Analysis: Yellow Cherry Digital Limited (SC507725)

1. Risk Rating: LOW

Justification: Yellow Cherry Digital Limited demonstrates exceptional financial health characterised by a nine-year trajectory of consistent net asset growth (from £1,952 in 2017 to £220,423 in 2026), a robust cash position of £203,611 representing 73% of total assets, and a current ratio of approximately 4.7:1. The company carries no long-term debt, and all filing obligations are current. The primary areas requiring attention relate to governance and related party transactions rather than financial distress.

2. Key Concerns

Concern 1: Related Party Transactions and Potential Conflicts of Interest

The accounts disclose payments to Orchard Compliance Ltd (£1,260 for accountancy) and Orchard Books & Payroll Ltd (£2,692 for bookkeeping), both of which are connected entities where directors Gareth Jones and Tiffany Jones hold shareholder and director positions. While these amounts are not material in absolute terms and are stated to be at arm's length, the concentration of service provision through director-controlled entities warrants scrutiny regarding whether competitive tendering occurs and whether terms are genuinely market-rate.

Concern 2: Debtors Concentration and Collection Risk

Trade debtors stand at £73,852, representing approximately 26.5% of current assets. This has grown from £64,052 in the prior year—a 15% increase. Without a profit and loss account (filed under the small companies regime exemption), it is difficult to assess debtor days or whether this growth is proportionate to revenue. An aging analysis would be necessary to determine if there are collection concerns or potential impairment.

Concern 3: Control Concentration and Minority Director Exposure

People with Significant Control records indicate Sarah Louise Francis holds 50-75% of shares and voting rights, with Joseph Jack Francis holding 25-50%. Directors Gareth Jones and Tiffany Jones appear to have no recorded PSC interest despite their board positions. This structure means the Francis family unit effectively controls all major decisions, while the Jones directors serve without apparent equity stake, creating potential for governance friction or decisions that may not align with minority interests.

3. Positive Indicators

Strong and Consistent Financial Growth

Net assets have grown every year since 2017 without interruption, increasing from £1,952 to £220,423 over the period. This represents approximately compound annual growth of 80% over nine years, indicating a well-managed and expanding operation.

Exceptional Liquidity Position

With £203,611 in cash against total current liabilities of £59,044, the company holds approximately 3.4 times the cash needed to settle all short-term obligations. The current ratio of 4.7:1 significantly exceeds the typical benchmark of 1.5:1 for healthy businesses. This provides substantial operational flexibility and resilience against downturns.

Low Leverage and No External Debt

The company operates entirely without long-term borrowings. The creditor profile is dominated by operational items—corporation tax (£35,088), VAT (£14,263), and other statutory obligations—rather than bank debt or finance arrangements. This suggests the business has been funded organically through retained profits, which is a conservative and sustainable approach.

Regulatory Compliance

All filing obligations are current, with neither accounts nor confirmation statements overdue. The accounts are prepared under FRS 102 Section 1A and signed by a director on 03/08/2026, indicating timely completion.

4. Due Diligence Notes

Profitability Assessment

The company has elected to file under section 444(1) of the Companies Act 2006, opting not to deliver a profit and loss account. While permissible for small companies, this prevents independent assessment of revenue trends, margins, and overhead management. The growth in net assets (£164,933 to £220,423, an increase of £55,490) and the significant corporation tax liability (£35,088) confirm profitability, but detailed margin analysis requires full accounts.

Trade Debtor Quality

The increase in trade debtors from £64,052 to £73,852 should be examined alongside revenue data. Request an aged debtor schedule to assess whether the debtor book is current or whether there are older balances requiring provision. Given the IT services SIC codes (62090 and 63990), understanding whether these represent contracted recurring revenue or one-off project billings is important.

Related Party Transaction Terms

Verify that the fees paid to Orchard Compliance Ltd and Orchard Books & Payroll Ltd are benchmarked against market rates. Consider whether the company has obtained competitive quotes from alternative service providers and document the rationale for using connected entities.

Employee Reduction

The average employee count decreased from 11 to 10. While minor, this should be contextualised—determine whether this reflects natural attrition, restructuring, or workload redistribution, and assess whether the remaining headcount is sufficient to support current and projected activity levels.

Directors' Loan Accounts

Creditors include £2,728 in directors' loan accounts (up from £2,416). Obtain confirmation of the terms, interest rates (if any), and repayment schedules. Ensure these comply with the Corporation Tax Act 2010 provisions regarding loans to participators, particularly given the close company status.

PSC Register Anomaly

The PSC register contains a duplicate entry for Sarah Louise Francis. While likely an administrative error, this should be corrected with Companies House to ensure the statutory register is accurate.