The founders of fashion chain Jules B paid nearly £1m into their business after discovering financial inaccuracies dating back to 2010.
Julian and Rhona Blades launched the Newcastle-headquartered upmarket designer clothing business in 1985 and have since grown it into an £8m turnover business with stores in Newcastle, Yarm and Kendal as well as websites tailored to UK, French, American and Australian customers.
The two directors believed that the business had been performing profitably but an unpaid tax bill led to Mr Blades uncovering a trail of accounting miscalculations that had been made by a former employee in the accounting years from 2010 to 2014.
This led to a £916,000 overstatement in its financial performance for the year ended January 2014.
As soon as the discrepancy was discovered a new finance director was brought in.
In all, the deficit was made up of £714,476 worth of overvalued stock, £479,293 of understated trade creditors and an overstatement of £74,000 for provisions for sales credit notes.
This led to taxes being incorrectly calculated in the year to January 31, 2013, which resulted in the profit overstatement.
The previous year’s adjustment, coupled with a £546,000 loss during the year to January 31, 2014, led to a total loss of £1.46m.
At the point of financial statement approval, Mr and Mrs Blades invested additional funding of £878,322 into the business to provide on-going working capital.
Meanwhile, long-established relationships with suppliers meant the couple could negotiate extended payment terms.
Mr Blades said: “It has been a horrible seven months but the business is on track again.
“Last June we discovered that a long time employee had lost control of the company’s finances and instead of mentioning it to me, he had hidden this.
“It was a frightening thing when we discovered it. I found a tax bill which I was told had been paid after I had been on a buying trip.”
He added: “Luckily we found a new FD who came in and worked tirelessly to restore order in chaos. He has done an unbelievable job.
“We personally invested up to £1m of our own money, thankfully it’s only up to over £800,000, in order to keep everything going.
“We have 100 wonderful employees we are proud of and we’ve got a very strong business and a very good reputation which we have worked for 35 years to build up.”
He added: “There is no suggestion the business is not in a good position – we are the innocent party and have done what we have done to keep the business strong.”