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Business Case Study No 2:

Client / Background

 

Three farming brothers who knew lots about sheep and cattle, sucklers and calves but nothing about how the business should be run, had a complete lack of financial acumen. There aim was to simply rear and sell fattened at market after around 20 months of rearing. They didn’t understand costs and a burn through of assets being refinanced had left them very short of cash. They didn’t know what to do next and had been loss making for a number of years.

Key Issues

The Partnership was not under any severe legal, creditor or otherwise, attack but has been loss making for at least the last three years of trading.

 

It is expected that latest figures would show a similar loss making position and the brothers have been compelled to act in order to prevent a decline in their asset base, which to some extent, over the years, has been supporting the cash flow of the business.

 

They have been under pressure from their Bankers in recent months resulting in a re-mortgage of their property in order to repay the Bank overdraft borrowings of c £60k and to reduce some heavy HP Lease commitments.

 

The key issue for this business was to consider a proposed further dilution of their asset values by re-mortgaging again to raise further capital in order to extend the out buildings and allow further livestock numbers to increase and / or to consider other viable alternatives to see income growth and profitability to return in order to meet ongoing and future expenditure. This would in turn be complimented by possibly refinancing HP commitments over a longer period of time to ease cash flow pressure.

 

In essence the partners had a dilemma, risk further asset dilution to meet current income and expenditure requirements or carry on as is and hope that market values improve for both livestock and bricks and mortar.

 

 

Clearly there had to be corrective action to stem further losses and a combination of well defined objectives was needed to ensure their survival, looking at income generation, utilising current machinery more effectively and extending services beyond their current marketplace, whilst still continuing with their core beef and sheep farming.

Corrective Actions / Recommendations

 

Our analysis suggested the following areas needed to be addressed:-

 

•The insolvent position

 

•Increase Sales

 

•Source new capital either from own resources or from channels identified through Business Rescue to be used in a specific sales and marketing campaign

 

•Seek to renegotiate lease and HP commitments over a longer period of time to ease expenditure and cash flow pressure

 

•Begin to source potential new clients interested in their services.

 

•Define financial systems and processes, looking at terms and conditions of trade

 

•Consider the merits of Limited Liability trading looking at potential tax and investment benefits and seeking maximum self protection

 

•Define its new long term business strategy and undertake formal business planning

 

•Define its financial and profitability model (pricing, gross margin), obtaining an up to date statement of financial affairs.

 

•Define its overall sales and marketing and operational models, researching potential new markets

 

•Define roles and responsibilities for its (expected)  employees

For advice on implementing a commercial debt management plan contact:

03309 999 24 7

Conclusions

 

Business Rescue recommended that the Directors develop their long term business and marketing strategies into a formal Business Plan, concentrating on core business and extending services to new clients and markets.

 

Business Rescue recommended that new capital is sourced but that this capital is used purely for investment into and for the benefit of the business only.

 

 

Business Rescue recommended renegotiation of HP and Lease contracts in an effort to reduce expenditure.

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