We were introduced to a Home Improvement prospect by a member of our network. The owner and management team were wanting more management information. After speaking with a member of the team initially and then the owner, it was agreed that we would start to look at the business with a view to taking on the services.
Once we started looking at the business it became very clear that they were experiencing more than the average amount of distress for a business of their size. Debt was crippling and cash flow worse than hand to mouth. This was a business that was paid for a significant amount of their work prior to completion, so this cash flow problem was unusual for this type of business. There had to be something else, something more fundamental.
Identifying why the business had cash flow problems
During our set up period, we took the time to investigate, putting routine management accounting to one side, and focusing on the detail. We found that historical industry benchmarks, KPI and cost assumption that had been used for many years were no longer relevant. Over the years, costs had spiralled to the point that they were at least 25% higher than the business owner thought.
Whilst this was being captured in management accounts, it was a small Group and the accounts were being delivered as three separate messages. The message was there in the accounts, but it was not fully understood by the owner. What the owner had taken to be a blip was actually a deep and dangerous reduction in profitability which threatened the Group’s ability to continue.
Fixing the cash flow problems
Having identified the position, it was clear that quick and dramatic action was required. We structured our team based on the skills needed to fix this problem and the timescales we were working with and started work to restructure. This was a deeply distressing time for the business owner, but we communicated with him regularly (often many times a day).
In a period of about six weeks, we were able to identify the ‘keep’ areas that were driving cost increases and the method to get them back under control. We were able to find a business partner for the owner who invested money to help support the company whilst things turned around. After two months, part of the group was liquidated and the salvageable parts purchased by the remaining entity to give a stronger platform on which to move forward.
Moving forward & growing a business again
We worked with the business so that they could regain relationships with key suppliers, and change the mechanisms for how cash was being utilised within the business. All of this made sure that material purchases were mapped directly to the funds received on account and ensuring that projects started to be carried out on time with all materials on hand ready to be fitted.
In the background, the operations manager (who had been new to the business at the time of us joining) had already identified the need to streamline processes and had identified Simpro and Xero as the necessary software partners to work with on this. Working with him on the implementation of this system helped him identify clearer workflows. Our knowledge of Xero meant that we were readily able to transition from the legacy system ahead of the Simpro go-live which in turn meant that we were able to further interrogate historical information and feed it into the re-organisation. This provided the data to enable the operations manager to completely change the way that sub-contractors were paid and how sales people were remunerated. These were two key points were adding 15% of the cost overrun that we identified at the start. The rest was found in overheads and reduced by cancelling unnecessary agreements. There were some staffing changes, but paramount to this whole turnaround has been a drive to disrupt the norm.
A learning process
When we arrived, we were met with a barrage of information why things were as they were. When we asked questions, a typical response was “This is how we do it in our industry”. We are proud to say that we are now driving a thought process throughout the business that questions processes every day and where the “industry standard” doesn’t deliver, the teams look to others for inspiration as to how to move forward.
Since the restructure
All of this occurred this year (2020) and the majority of this against the very real back drop of COVID 19. At the same time as working to turnaround this business, we were also working to help them survive a global pandemic. Cash management that was already a big focus, became an almost hourly need and the team were constantly seeking out ways to get support.
As the business fell under the banner of non-essential retail, the tap was turned off entirely and we realised that the challenge was how to come out of lock down rather than how to survive the lock down itself. All efforts were focused on ensuring that systems, processes and the cash to serve them were in place and ready to react.
Staff who maybe would have been furloughed under the old ways, were kept working from home and focused on:
- Getting workflows identified and written for the new systems
- Defining contracts so that they were better mapped to the business’s processes to ensure that funds were received at the right times
- Identifying proper KPIs that were being developed and communicated
- Reviewing compliance activities to ensure they were brought up to date
All of this was part of our remit. We provided the insight that drove positive change – not singularly, but working seamlessly with their employees and with the new shareholders.
To date (November 2020), we have seen a focused team building a credible sales pipeline. This now delivers the correct gross margins, with clear visibility of project profits, a more manageable overhead and a defined break-even. The building blocks for a return to profits are there and following re-opening, activity is most definitely moving quickly. The future here does look brighter.
The take home from this
As a finance team working closely with our client, we were able to deliver honest but difficult messages with tact. We were able to give them support and guidance to make the necessary changes as well as giving them access to our trusted network of specialists to get them the help that was needed. Most importantly, we were there for them as individuals as they dealt with two extremely stressful points of change simultaneously.
Now as we build their new normal, moving forward, we are very much part of their team and they are very much part of ours.