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;
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.
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?