Trading Company Case: Is There Actually a Profit?

The Task

The owners approached us for financial support. The task appeared straightforward: establish regular management reporting and help make decisions based on numbers. But behind this request lay a deeper question the partners could not answer with confidence: 'Is the business genuinely profitable, or are we burning through borrowed money?' Sales grew year on year, the partners had already distributed dividends among themselves, but free cash was dwindling. The company regularly attracted new loans, both from banks and from private individuals. And behind those loans stood the personal real estate of one of the partners, the cost of a mistake meant not just a line on a report, but the loss of real property.

What Was Wrong: Diagnostics

• The Accounting Did Not Reflect Reality

  We started where any engagement begins, we dived into the accounting data. And we quickly encountered the fact that providing the service in its current form was impossible: the bookkeeping did not reflect reality, despite the chief accountant's assurances.

• The Accounting Could Not Reveal the Real Picture

  All flows were aggregated in one mass, without separation into operating, financial, and investing activities. The bookkeeper maintained the accounts exactly this way, and the owners trusted those figures. Receipts from bank loans and loans from private individuals were mixed together with sales revenue. The result was an illusion: the business appeared to generate positive cash flow, when in reality it was inflated by credit money.

• Why Import Trading Demands Exceptional Accounting Quality

  A trading company with imports is one of the most demanding business types for accounting quality. Here, supplier and buyer payment terms, customs clearance with duties and import VAT, inventory management with stock control, bank lending with collateral, and foreign currency operations all intersect simultaneously. Each of these layers creates its own cash flows, and if they are not correctly allocated in the accounts, the owner cannot see where earned money ends and someone else's money begins.

What We Did

• Separation of cash flows: we took four-plus years of data and manually analysed every transaction, categorising each as operating, financing, or investing activity. Due to the state of the accounting, a classic P&L analysis was not possible, so the foundation became a cash flow analysis
• Revealing the real picture: once the flows were separated, the answer to the owners' question became obvious. Operating activities generated a deficit. The company spent more on procurement, logistics, and administration than it received from sales. What appeared to be positive cash flow was the receipt of credit funds
• Risk systematisation: beyond the operating deficit, we identified and documented six additional critical business risks
• Roadmap: we prepared a plan in two blocks: optimisation of current operations (revising payroll, pricing policy, inventory management, currency risk management, and separating personal and corporate finances) and accounting restoration (full normalisation of bookkeeping, unified standards for an import trading business)

Result

• An Honest Answer to the Key Question

  For the first time in four years. The business was not profitable in the way the owners had believed.

• The Profitability Illusion Exposed

  Credit inflows had been masking the operating loss.

• 7 Critical Risks Identified

  Which had remained hidden behind opaque accounting.

• Sales Margin by Year: Ranging from 5% to 32%

  Potential identified to stabilise at 25%+ upon resolution of the identified issues.

• Step-by-Step Roadmap

  For business recovery and accounting restoration.