£10M Of Revenue But Still Making A Loss: Inside The Administration Of Central Working

The collapse into administration of coworking firm Central Working highlights just how difficult it is to make money in the flexible office sector.

When it fell into insolvency, Central Working was growing its membership and its revenue and had a strong brand, but was struggling to translate that into a profitable business, according to a report by the administrators to the company filed in the week before Christmas. 

Ultimately the lack of profits from the company caused one of its shareholders and its main lender to lose faith and move to put the company into administration. As with the debt-fuelled administration of fellow coworking firm The Clubhouse at around the same time, it is a salutary lesson for operators looking to get into and scale up in the sector, and landlords deciding which brand to put into their building.

Central Working was set up in 2010 by former advertising and brand executive James Layfield, and opened its first flexible office in Bloomsbury in 2011.

Between 2012 and 2014 it opened sites in Whitechapel, Manchester and Shoreditch, and at the latter it helped U.S. tech giant Google set up a coworking campus. By 2015 it had its 1,000th member and opened a site at a British Land office Crown Place in the City. In 2016 it struck a second agreement with BL to open an office in Paddington and it also opened an office in Farringdon.

In 2017 it opened sites in White City and Cambridge and hit 3,000 members. By this time fellow entrepreneur Andrew Thrasyvoulou had joined as a director and the company took out a £1.5M overdraft with Metro Bank. Sites in Victoria, Reading and Slough took it to a final total of 11 sites.

By 2017 the company was making £4.2M in revenue, according to the report into the administration filed by partners at Quantuma. But that year it also made a loss of £1M with the cost of acquiring new members, wages and rent outstripping the money coming in from members. In 2018 the company produced revenue of £8.6M, but losses had increased to £1.2M.

This year the gap between costs and income narrowed, and in the nine months to the end of September the company only made a £90K loss on £10.4M of revenue. But the company could not sustain itself while making a loss.

In early 2019 the company appointed boutique advisory firm Cavendish Corporate Finance to find a buyer. By August the company had received four offers, but some of these offers could only go through if the company was put into administration, because of its large liabilities. The report said one of the shareholders (it didn't specify which) issued a winding-up petition against the company because they were owed money. 

This winding-up petition, and what Quantuma described as “deadlock between the shareholders” led Metro Bank to pull its overdraft from the company, which worsened its cash position by £860K. This was the final nail in the coffin. The winding-up petition was dropped so the company could be put into administration, and on 18 October partners at Quantum were formally appointed.

Quantuma said in its report that it chose a preferred bidder from one of the offers made for the company, without specifying whom. IWG is reportedly in talks to take over the sites operated by Central Working, according to Property Week. However, the landlords of two sites have said they want to take back the space leased to Central Working in Farringdon and Cambridge. In Cambridge the landlord is 500-year-old Trinity College, one of the famous university’s colleges. In a move that is surprisingly hands on for an educational institution, Trinity will look to re-lease the space itself.

Quantuma is carrying on operating Central Working itself, taking the view that it will generate more for the business if it is still operating. The rent for the company is about £800K a month, and it expects to bring in about £2.6M of revenue in the final quarter of the year.

Quantuma said it did not know yet how much it would receive for Central Working’s assets, so it was not possible to say how much creditors, who are owed a combined £7.5M, will receive. Landlords are owed £2.4M in rent. Nonetheless, the company’s struggles show how difficult it is to make money in coworking, even when you are growing fast.