Building Refurbishment Company

 

GOALS: To solve their continual cashflow crisis which existed despite their books showing a profit, to create an exit strategy for two of the current owners while enabling younger family members to take over the business without risking reputation or failure and to prevent conflict within the management team largely being caused through the liquidity issues.

 BUSINESS PROFILE: There were a number of directors within the firm, all confident that, as there was a regular pipeline of work,  the business was healthy despite the cashflow being a significant and on-going issue.

 

Initial investigations revealed a number of separate issues;

  • Financial management was crude and gave no real-time picture of their cash position or how this was likely to develop in the future, meaning overdrafts were seen as a necessity for the business to trade and not as a potential threat
  • Target projects were acquired on an ad-hoc basis with no understanding of type and size that suited the business. Instead projects were taken on based off start dates and current work in progress and were simply priced to be cheaper than their competition with no consideration as to how they affected the cash flow.
  • There was no retrospective analysis of previous projects undertaken to compare against quotes, so only rough estimates on time and costs were used to quote work, so no lessons were learnt from previous projects.
  • Site managers were free to purchase as and when they wish as there were no purchase controls in place and inevitably little or no control on overall costs.
  • As there was a high level of trust between directors and staff,  no attempts were made to implement meaningful KPIs and no measures of effectiveness were evident in the business.
  • There was no agreement on who would succeed the current directors in their daily roles and there were no shareholders agreements in place.

It is often the case that Owners and Directors of a business can, over a period of time, develop a general feeling of infallibility and not realise the extent of their issues and have different views on exactly what those challenges are. This can lead to entrenched habits and entrenched positions and when it involves family, particularly as new members join an existing business, discord often results.

THE STRATEGIES: A proper board of directors was established with, after some discussion, roles and responsibilities appointed and written down.  Supplies needed for projects were strategically managed rather than the old ad hoc ways, and better prices were renegotiated with fewer suppliers.

A cash management policy was put in place as was a director to supervise the process and a reporting procedure was permanently put into the monthly board agenda.

Competitor analysis became a permanent process and after some considerable work an up-to-date project management system was put in to schedule work properly, prices were determined in a more scientific manner and acceptance of new work entered a full appraisal process.

Lawyers were appointed to address the shareholder protection issues, agree contracts of employment for all staff and delicately steer them to an agreed exit strategy; they even devised terms and conditions for the entry of newbie directors.

Control was put on directors’ remunerations and funds set aside for reserves as time went by.

OUTCOMES:

  • Daily business life became less stressful and disagreement became more of a rarity
  • Project management was developed from the initial quick fix through to a fully functional and measureable system.
  • The company’s bank balance went positive, and reliance on the overdraft disappeared.
  • The reputation improved from what they saw as already a very high standard – not least their credit rating soared
  • Two new Directors were brought in to develop new business avenues.  Roles and responsibilities were defined, contracts reflected the need for them to add value, and their performance was measured from day one
  • They became one of the premier refurbishment companies and expanded to internal design and build for pubs across Europe.

Moral of the case – being too close to the business can blind you from the obvious.  Once a business gets to a modest size, it is good profitable practice to get outside help – how do you put a value on the change in this business?

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