Background
Successfully operating for 25 years, a multi-director business expanded into a new market segment due to the impacts of the global financial crisis. Based on the advice of an industry expert consultant, they implemented a new operational structure. This decision, unfortunately, led to financial distress due to several factors:
- Lack of Skills and Experience: The business struggled in the new market segment due to insufficient expertise and knowledge.
- Increased Overheads: The new operational structure led to higher operational costs, duplicate processes and unclear information.
- Lack of Focus and Direction: The owner-directors were struggling to make decisive decisions.
Challenges
Ineffective Management Layer: The new operational structure had increased costs without providing operational benefits.
Financial Losses: The true extent of trading losses was obscured due to poor utilisation of the accounting system.
Bank Support: Their bank had lost confidence in the business due to inconsistent financial information.
Our Intervention to relieve the Financial Distress
Referred to us by their accountant, who was aware of our expertise in diagnosing and resolving business issues, we took the following steps:
Diagnosis and Cost Reduction
Using our ACTION Phase, we completed diagnostics,
Identifying Inefficiencies: We discovered that the additional management layer was unnecessary and costly.
Cost Savings: By removing this layer, we saved the business over $1 million annually.
Financial Management
Weekly Cash Forecasting: We implemented a system to provide accurate and timely cash flow forecasts.
Accounting System Improvement: We enhanced the use of their accounting system to ensure reliable financial data.
Bank Relations
Refinancing: We leveraged our past relationships to introduce the business to a new bank. The bank’s credit team, familiar with our strategic advice and turnaround expertise, agreed to refinance the business after we submitted detailed forecasts supported by a pragmatic strategic plan.
Strategic Focus
Director Focus: We focused the owner-directors energy toward activities aligned with their skills and enjoyment.
Monthly Meetings: We revised the structure of monthly meetings to ensuring ongoing alignment with business strategy.
Outcome
The business quickly returned to profitability. Key outcomes included:
- Cost Savings: Over $1 million saved annually by removing the ineffective management layer.
- Improved Financial Health: Accurate financial information and effective cash forecasting restored bank confidence.
- Strategic Direction: Directors were able to focus on their strengths, leading to better business decisions.
Ongoing Support to avoid future Financial Distress
Recognising the value of our assistance, the business uses our Advisory Board and Strategic Planning skills to provide ongoing support and strategic guidance.
This case study demonstrates the importance of expert intervention in diagnosing and resolving business issues, leading to a successful turnaround and sustained profitability.
*No names are disclosed for the privacy of our client. This is a real situation and unsurprisingly one we encounter often. If you, or anyone you know, needs assistance in a similar situation, we offer a free, no obligation Discovery Meeting, so please, feel free to contact us for a confidential discussion.