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The Troubleshooter - big company encounterCASE STUDY:
SITUATION
‘Clothing Co’ a manufacturing company based in Derbyshire. Part of a worldwide group and a turnover of £80 million.
The company was hemorrhaging cash and we were brought in alongside a team of insolvency practitioners (IP’s) to find a solution. Typically this situation occurs very rarely since a Troubleshooting company look to turnaround companies ideally without the need for IP’s (often also called Business Recovery agents) and IP’s rarely earn any fees without a company going into some form of administration.
ANALYSIS
So head to head we both had our own agendas and set to work. Our approach was to get into the thick of the action moving from department to department evaluating and solving problems as rapidly as possible in order to patch the many holes in this sinking ship.
What we found was shocking and still today we are amazed by how easy it is to find and solve problems in large companies. Like a big ship, however, it takes time to turnaround with departmental communication often the problem. This is why we work through departments listening, observing, gaining trust. Everyone is scared. Our aim is to save and not terminate jobs.
SOLUTION
The debtor book was healthy, cash collection non-existent. The cash collection system used was to send statements in the post and wait. It was no wonder why cash collection was poor. Immediately we gave one person the role of dedicated cash collection in this finance team of 7, and to get on the phones and get the money in. £1.5 million was collected within 7 days which helped pay salaries and bolster the cash position.
The IP’s had managed to scare the invoice discounting company who decided to call in their position. This resulted in our working with the newly appointed CEO (the IP had dismissed the previous one before our arrival) to get funds in from group on a weekly basis. £1 million per week was called upon to keep the cash position in a state, which stopped the company from being closed.
Strict cashflow processes were introduced. Finance instigating new systems with Production to help keep run rates high whilst at the same time operating stop procedures with suppliers not actively paying their bills.
We moved to sales.
A couple of days later we found the CEO in tears. He had been told behind closed doors in a one to one with the IP that if he didn’t close the company that day he would go to jail. It was a tactic that we found completely disgusting but understand actions of people sometimes go to the extreme when their focus is greed and self interest. In these highly stressed situations things become very tactical. The IP was using fear and threat in a subtle yet direct way.
For the record this was never going to happen, the company cash position was strengthening and it had the support of the group. Finances were improving, production running at over 70% of capacity and the CEO had been acting in the creditors position all of the time. To protect the board and head off the IP we brought in a large city law firm to comment weekly as to whether the company should continue to trade. Unequivocally each week the answer was yes.
The IP was not impressed. Costs were high but there was a lot at stake. 100 cars sat in the car park. Everyone has families and Christmas was close. The impact of closure would be massive.
In moving into sales once again the system was structured and managed badly. The team of 20 sales people was targeted on total sales revenue and not margin. This resulted in many clients receiving product at less than the cost of production. The better these sales people did the more the company would lose. ‘It’s the way we have always done it’, one said, ‘not now’ I replied and two sales managers positions were created to manage these teams and the margin.
Operations – Production, IT and HR were next whilst keeping an eye on the progress in finance and sales.
With the company more stable we finished our work with the company crisis averted.
Larger companies are easier to Troubleshoot than smaller ones. The emotional carnage is similar in both.
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| The Troubleshooter - big company encounter | | The Way in Business | | The Troubleshooter - its business and its personal | | Budget comment for the Belfast Telegraph | | Business Turnaround - Forecasting Your Cashflow |
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