Something Changes And Your Business Starts To Struggle…
Ever seen a business that has been working perfectly well, making a reasonable return, then suddenly… it doesn’t? Something has changed. You feel things starting to slip. Financially things are not what they were. And often…
… you just can’t pin down what has happened or why.
And in no time you can find yourself in a battle for survival as you desperately try to turn your business round.
What happened to this business?
To focus on this business’s size and sector would be to miss the point here but to help create a picture in your mind this was a £9m turnover window manufacturing / contracting business. In hindsight, the directors felt their business had been perfectly sound until they decided to move to much larger premises. From that point on, cash flow gradually got worse until they found themselves with serious pressures. Was that the real problem… we will never know. Now whether it’s moving office, losing a customer, losing a key member of your team or even something seemingly quite innocuous, the fundamental issue is much the same… how do you get the business back on track?Downsize and keep busy
In this case, to head off their mounting difficulties they embraked on a drastic downsizing exercise. losing 30% of their capacity as well as cutting overheads too. But downsizing is fraught with financial risk (more so than you might realize) unless you are very close to the numbers. The rationale and likely impact on cash flow has to be thoroughly understood and calculated. In this case it was not and downsizing served only to exacerbate their cash flow crisis. In parallel the directors pre-occupied themselves with bolstering sales volumes to keep the workforce busy. But throughout this process the numbers were all but ignored. In some ways – given the unrelenting bad news – this is understandable but hoping more sales will feed through into more cash in the bank is unfortunately by no means guaranteed. And they were beginning to see this for themselves.Reversing the direction of travel
For any business struggling to compete, the answers might, on the face of it, seem obvious. But as in many other cases, the directors DID the obvious here but it simply did not work. So instead, just by focussing on ONE line in the profit and loss account, we found that it didn’t take long to highlight opportunities where they could compete and win better quality work that had been previously overlooked. And where we have brought a similar focus to bear on this aspect in other businesses, in similar circumstances, we have seen it has the power, when applied with appropriate diligence, to transform their financial situations. In any other circumstances this should have been enough. But with the cash flow stabilized and our job done, things were again allowed to slip. And sometimes you do only get one chance to make the changes needed…Acute cashflow problems
Twelve months later we were brought back in to provie what we were initially told was ’strategic financial input’. The truth was very different. The task was in fact to steer the company through extreme cash flow pressures and virtually certain insolvency. So what had gone so badly wrong? Following an incident, their principal lender lost complete confidence in the directors. (More than £500k in funding had been withdrawn from the company’s invoice discounting facility in less than 6 weeks.) Add to this the fact that the principal owner was on the hook for a substantial personal guarantee (many hundreds of thousands) which the lender was aggressively pursuing and the pressures on the directors were clear. But it didn’t stop there. With all of their payments being micro-managed by the bank who was also taking a keen interest in the businesses’s figures, their accounting system crashed (permanently complete with all back-ups). Now, while this is an extreme case, you may (or indeed may not) be surprised how often one problem compounds another in cases of extreme financial distress, If you are not careful the bad news just keeps on coming until that one straw finally breaks the camel’s back. Given the savage scale and speed of the withdrawal of support from the bank, the directors deserve due credit - few others would have lasted a week in similar circumstances.Could this business be saved?
Ultimately the business was sold to it’s biggest supplier and (just) avoided insolvency. In the process a substantial sum was realized for the owner (who at one stage looked to be heading for a far less comfortable retirement).Company turnaround - this case demonstrates…
… On the one hand you could view this in terms of snatching some sort of victory from the jaws of certain defeat… or just what is possible in the most savage of predicaments - with all manner of ill-luck and misfortune befalling this business - where others would have been inclined to simply throw in the towel. And while that’s true, I think the real lesson here is that it did not need to turn out this way. A business that could have forged a viable and independent future was denied that opportunity by failing to grasp a key opportunity to make the necessary changes to its business.We can offer you…
… a free initial meeting to help us better understand your needs (in confidence and without obligation).
… where relevant, as a first step, a quick initial cash flow to try to clarify your financial situation.