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Manufacturing
Restructuring and Refinancing

Background

The client was two furniture businesses owned by the same CEO. The businesses were both traditional British furniture makers who proudly manufactured in the UK. Combined turnover was £7m. The family of the CEO were very well known and respected in the trade and had been for decades. The CEO was therefore determined to protect the brand names of the businesses and furniture manufacturing in the UK. Both businesses had been struggling and unprofitable as separate businesses and the CEO had purchased the second company with a view to finding cost savings by merging the two businesses (whilst retaining the two brands).

The Brief

The initial brief was to spend a week reviewing current reporting processes and operational systems with a view to preparing a document in which we would set out recommendations on how the business could move forward as one company but two distinct brands. The report would outline the tangible action steps to be taken with a timeframe and who would be accountable for the action.

Within that first week of researching the activities of the business, it’s existing bankers decided that they no longer wanted to continue supporting the two companies and they were put into ‘intensive care’. Reporting accountants were engaged on behalf of the bank and the two companies were given 3 months to find alternative banking arrangements.

Assignment

The brief therefore changed and the priority became to (1) satisfy the needs of the reporting Accountants so a positive feedback was given to the bank and (2) in parallel, to approach new bankers and invoice discounting funders with a view to re-financing the business.

The business was not in the habit of formally forecasting cashflow. Historical cashflows and supporting explanations were therefore not available to aid answering the questions raised by the Reporting Accountants (a big 4 firm).

The initial period was therefore an intensive one and the objective was to plot the current and recent historical position and to convince the Reporting Accountants that the business was strong enough not only to survive the three month period but also to be in with a realistic chance of convincing new bankers that they should offer sufficient facilities. In the end, very positive feedback was given by the Reporting Accountants.

The next stage was to prepare a funding proposal document which was a three year plan that showed:

A combined cashflow forecast based upon the current situation
The proposed action plan to establish the two businesses as one legal entity by merging Business 2 into Business 1
Identify the steps that would be taken and the savings that would be achieved over the three year timeframe by maximising the available synergies
The revised cashflow forecast for the three year period bringing all of the proposed action steps into play
Identifying how basic reporting systems would be improved so that the new bankers would receive all of the information they needed to keep abreast of the progress that was being made
Outlining the legal actions that would be taken to move from two legal entities to one entity
Outlining the cultural change programme that would be commenced to ensure that the two brands (that were previously competitors) would happily co-exist under one legal entity

The exercise was successful and the two companies were able to move away from the existing bankers and joined a new bank and invoice discounting provider. On successful completion of the legalities and the new banking arrangements going live, the emphasis changed towards implementing the change programme set out in the document. This consisted of the following:

A formalised month end process was introduced and a newly designed management pack
Introduction of a monthly Board Meeting fully minuted with actions arising allocated to individuals
A Non-Exec Chairman was brought in to play devil’s advocate and steer the business along it’s chosen path
Creation of a new operational management team – the key functional heads in the business were brought together for the first time. Operational KPIs were introduced with a focus on setting benchmarks, achieving targets and then re-setting it as a new benchmark
A company wide communications programme was started which explained what the future would hopefully look like, what approach we planned to get there and what the implications were for each department
The re-development of the two accounting functions to share services and re-engineer the general ledger and create cost centres (departments) for the first time
Focused on the daily sales margin achieved for the first time and prepared profitability reports by customers and by products
Introduced daily customer services meetings aimed at identifying anything that had gone wrong on the previous day, undertaking root cause analyses and setting corrective action plans to avoid the same issue in the future

Conclusion

Twelve months after the switch of banks the business was still on track with the business plan that had been created. The change programme was under way and the managers within the business were adapting well to the new ways of looking at things and working. Cashflow was still tight but the business now had information at it’s finger tips so cashflow discussions became a weekly part of the business review.

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Nicholas Radford Managing Director, Nathan Furniture

“Les sorted out a number of banks and negotiated a new banking relationship for the business. Les is an effective operator who quickly identifies the issues in the business and implements solutions.”

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