Small (and not so small) Umbrella companies and Ponzi schemes

[cojak]

It seems that the financial crisis is bringing down previously hidden wobbly umbrella companies.

And the tipping point appears to be the end-of-year tax returns.

Anyone out there who hasn't looked too closely at their Umbrella Co. for the previous 8 months had better take a good look now. Open up the bonnet and kick the tyres is my uneducated advice to you all.

Then find out what a Ponzi scheme is and get yourself a good accountant; they'll set up your own Ltd Co.



HTH

[PhilAtBFCA]

Umbrellas and Offshore

Hi cojak,
Interesting comment, it does seem that there is more worry about how the recession is hitting Umbrella Companies, I read the last Umbrella Supermarket newsletter and it was talking about the same thing.
There also seems to be more threads about Offshore, and I wondered if this was connected to the concern over Umbrella Companies ?
"Out of the frying pan, into the fire" springs to mind in my view, perhaps ?

Phil

[cojak]

The Offshore threads are from people who are greedy and gullible, as opposed to just gullible.

[Beefy198]

The umbrella model SHOULD be one of the most recession proof business models:

1) Invoice agency/client
2) Wait until money comes in
3) When money comes in, deduct tax, NI and fee
4) Pay anything else to contractor

Theoretically there should NEVER be any debt to the brolly... which is why I always say to people that ask my advice not to go with any umbrella that advances their funds before they get it from the agency. Besides, many of us are actually on better terms of payment (weekly in arrears) than permies! (Once a month)

[cojak]

This is fine provided they haven't already paid out your money to pay someone else* on the basis of a business model that doesn't hold water (and that you don't know about).

I'm sure that there are quite a few 'standard' umbrellas out there who rob Peter to pay Paul and are sweating buckets....

*Their Company Directors

[centurian]

Hi cojak,
Interesting comment, it does seem that there is more worry about how the recession is hitting Umbrella Companies

While no comfort, downturns are kind of neccessary to weed out the dead wood. During the boom, a lot of businesses relied on increasing turnover and cashflow without an underlying profitable model. As long as the boom continues, they can continue to leak money, but once you tighten the screw a little, they collapse very quickly.

Just one example - imagine how much more money Madeoff would have swindled had it not been for the recession.


This also means that because our great leader had ended "boom and bust", then so many companies were allowed to go bad.

[expat]

While no comfort, downturns are kind of neccessary to weed out the dead wood. During the boom, a lot of businesses relied on increasing turnover and cashflow without an underlying profitable model. As long as the boom continues, they can continue to leak money, but once you tighten the screw a little, they collapse very quickly.

Just one example - imagine how much more money Madeoff would have swindled had it not been for the recession.

ISTM that's Cojak's point: make sure that your Umbrella is not dead wood, on the ground for example of paying their directors from the income that should have been kept to pay contractors.

And if they're sweating buckets it's only at the thought of having to wind up Golden Goose Brolly Ltd and walk off into the sunset with money hard-earned by others.

[expat]

The umbrella model SHOULD be one of the most recession proof business models:

1) Invoice agency/client
2) Wait until money comes in
3) When money comes in, deduct tax, NI and fee
4) Pay anything else to contractor

Theoretically there should NEVER be any debt to the brolly...

Try this model:

1) Invoice agency/client A
2) Wait until money comes in
3) When money comes in, deduct tax, NI and fee
4) Pay directors more money than is really available
5) Stall paying to contractor A because you don't have enough money after (4)

6) Invoice agency/client B
7) Wait until money comes in
8) When money comes in, deduct tax, NI and fee
9) Pay directors more money than is really available
10) Pay money due to contractor A
11) Stall paying to contractor B because you don't have enough money after (9) & (10)

...etc.

Starter for 10: identify who is left standing when that music stops.

[frank size]

Sounds like a fair analysis of accountancy solutions market for contractors. It's not difficult to run an umbrella business on the business model descibed by Beefy198 especially for an accountant running an accountancy business!

However, look at the types of people that have profited as an MSCP in the past and continue to find interesting models to by-pass the legislation. Are they accountants or entrepreneurs? Do they all stack up? Answer is - not really.

Do they provide great cashflow - yes. Is that cashflow carefully controlled when thousands of contractors are joining left right and centre on the back of a great sales pitch? - maybe.

I would be looking at my brolly and asking who is the owner. Is he/she visible? Have accounts been filed? do they show a profit? If they make a loss - who has supported that loss (look at the balance sheet) - it'll be the bank, directors or the other creditors - wages owed.

If you think that you are at risk - what do you do? If everyone left on mass there isn't enough funds to go round and the business goes bust. If you stay, the problem could be spiral out of control and the liabilites get bigger.

Lastly - would this be described as a ponzi scheme/fraud or is it a straight forward business gone into administration. The victims are the contractors, but are they innocent victims? They have jumped into a myriad of schemes to avoid HMRC and have left themselves exposed in an unregulated company(s).

My conclusion - Give me a group of greedy/risk adverse contractors and entrepreneurial/greedy/risk adverse scheme operators and I'll give you a recipe for disaster. Go to an individual that is an accountant (qualified and regulated), ignore approved schemes run by the invisible people. Get advice and take notice of where your money is and is going - you are supposed to be in business of your own accord! Unfortunately you might have to pay a small percentage of your earnings - but it'll be worth it.

[NickNick]

This was the model that Vertias Recruitment used right up until they went bust. I wonder if it's the same model that the directors at my-ijob.com use?