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Both directors had been forced to provide Personal Guarantees to the bank in order to gain adequate funding and relatively quickly they had exhausted this new level of funding.
For too long they were trying to creatively operate unsuccessfully within this facility. What we did A quick review and analysis was conducted of the historical and current trading situation, interviews with all employees were conducted and conclusions and recommendations produced. It was evident that the company was technically insolvent, employee morale was extremely low, the directors were completely disenchanted and the business strategy was confused and would not result in a recovery. Additionally, many of the administrative/financial disciplines necessary to safeguard any company were not in place. At the same time the bank was requesting a substantial reduction in the overdraft from £500k to £200k. Weekly monitoring devices were put in place to ensure that the creditors position was protected, cash flow projections were introduced, sales output was prioritised and a Financial Controller was recruited. A new coherent strategy was endorsed by the owners requiring the business to exit from its main customer, a more balanced product category portfolio was introduced alongside a more balanced market sector involvement. Sales targets and bonus schemes were implemented and communicated as well as a total reorganisation of personnel into highly focused, results driven business teams. A major presentation was made to the bank to justify the need for appropriate funding. Results The projected £300k loss was reined back to breakeven and the Balance Sheet recorded a positive position, a remarkable achievement by the directors and employees. An orderly exit was agreed with the dominant customer and a successful drive took place to reposition the sales base. The bank appreciated that the business was in a state of transition and if successful could once again become very viable and accordingly kept the £500k facility in place for a further 12 months. The employees were very receptive to the series of change management projects implemented. Morale was quickly restored and the rejuvenated owners have fallen in love with their company once again. The restructuring of the organisation is resulting in the directors only getting involved in the big issues and the increasing tendency for upward delegation has stopped. Following the period of the turnaround the client is projecting a £200k profit and already has a better than expected order book. Regular monthly meetings with key personnel have been instituted resulting in the various managers becoming clearly accountable and responsible for their functional areas. Case Study 2 Problem The client is a quality service provider to the Automotive industry. Since the owner had suffered an illness two years ago and brought in new management to run the company, whilst he attended to his other business interests, overall performance had deteriorated, the overdraft was climbing, losses were rising and the business lacked control and direction. The owner was increasingly concerned about having to inject his personal funds into the business . Likewise the bank was getting alarmed at the funding levels that within less than two years had grown from £150k to nearly £300k and accordingly referred the client to us. It took the client three months of further struggle before he decided to use our company doctor service. What we did In the first two days we carried out an intensive fact gathering exercise, held interviews with key managers, reviewed some of the critical systems, reviewed a couple of industry performance reports and conducted a detailed visit of the operation. By day three we had produced a comprehensive report for the owner supported by relevant analysis and recommendations and a plan for business process improvement. It was clearly evident that the business was operating like a rudderless ship, communications and decisive decision making was poor, no budgets or operating targets were in place and as a consequence accountabilities and responsibilities were weak. Payroll costs had grown by 20%, sales were constant, inventory had reportedly grown substantially and annual losses were going to be in the order of £80k. These key facts were unknown by the Bank and the owner. In conjunction with the executive team we produced an achievable budget and cascaded from that a twelve month cash flow forecast and projected debtor/creditor balances. The company was clearly insolvent and facing increasing creditor pressure but was potentially a profitable business if better managed. The cash flow projection indicated that in the early stages of the turnaround would exceed the current overdraft facility. Results The client reacted quickly to implementing a wide range of improvements and controls. An efficiency bonus was instituted on the shop floor and immediately yielded a 20% improvement in productivity. All operational departments were issued with measurable performance targets that were monitored on a daily and weekly basis. The sizeable administrative team was reduced in size and made more effective. Organisational reporting lines were made very clear. A major tidy-up of the messy accounting database took place resulting in a reliable P&L a/c and Balance Sheet. Products and services for margin improvement and sales growth were identified and implemented. A manageable overhead reduction plan was put in place. The Bank was put in the picture and funding restructured recognising that the cash position would worsen for three months before it started to improve. The company is targeting a £75k profit for its first trading year in recovery. Case Study 3 Problem Client is a multi-million pound bespoke heavy engineering and plant hire business operating within a niche sector, exporting two-thirds of its output. It is a family business and has been established for over 25 years. We were introduced to the owner by his firm of auditors. The owner had become extremely concerned about the company's poor delivery performance on manufactured goods. In fact nearly every order was running late and in many instances over-shooting by many weeks. The previous year the company had reported its first small loss. What we did We conducted a three day appraisal in April 2004, interviewed key personnel and made a presentation to the family covering observations and recommendations. The family felt incapable of introducing the proposals and invited us to implement the action plan. Within a brief period of time it became very evident that all aspects of the business were in poor control and therefore we would need to start the transformation into becoming a proper company. Financial reporting was useless (and not used), many financial errors and omissions were uncovered. Simple controls on manufactured lead times were introduced as well as rough cut capacity planning, correcting delivery dates,ensuring that a correct and detailed scope of work was prepared and basically ensuring that demand and capacity were balanced. During this initial stage we uncovered that the manufacturing division was a serious loss maker but its performance was concealed by a profitable plant hire business which was rapidly on the wane. In fact we calculated that manufacturing, which was the core business, had been a big loss maker for many years and in 2004 had achieved a £750k loss. We also identified that by the late summer the company would run out of money. As a consequence the assignment shifted to becoming a business turnaround. We froze the annual pay award, took control of product pricing, quotations, introduced new financial reporting and regular executive meetings, installed correct contracts of employment, company handbook, health & safety program, employee appraisals. By the late summer funds were running out, suppliers were putting the company on stop and the owner had failed to convince his existing lender and an alternative to fund the company. At this point he requested our assistance and within a couple of weeks we had raised a facility of £1.7m with a new lender. Towards the end of 2004 we had recruited two new executives into the company, divested the plant hire equipment, built a new factory extension. Losses were slashed to £300k. Results During the first half of 2005 manufactured sales were up 50% year-on-year and a new product diversification strategy was underway. The company generated £300k profit in the first half year and had built a strong cash balance. The client identified a small business that had gone into liquidation and merged into his own. The client is now seeking an acquisition opportunity and/or exploring some new product areas. |
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© Copyright 2004. FB Associates - working in East Anglia : Essex Suffolk Norfolk and Cambridgeshire
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