It had been a successful little company, building up a good reputation for service in its local marketplace for supplying and fitting heating and insulation into local homes, before then successfully moving into solar, firstly thermal for heating and then PV for electricity.
So successful in fact that it was bought out for c£4m about five years ago by a man with an ambitious expansion plan which involved moving on from doing local domestic work, to become a regional player.
The way to do this was to double the area to be covered geographically, while seeking a volume of work from main contractors rather than relying on direct sales to consumers.
Or in other words:
- increasing the cost base and inefficiencies arising from distances to be covered,
- while moving from customers at full retail price who paid as the work was completed (and letting all the consumer sales activity and effort wither on the vine),
- to working as a main contractor’s sub-contractor, at the rates a main contractor would negotiate, as well as the credit terms they would impose.
Surprisingly this strategy was not a complete success, particularly once the business found itself heavily reliant on a single main contractor for about 2/3rds of its work.
As a result it was sold to new owners with almost £2.5m of Goodwill being written off in the process, who then themselves exited after about 6 months in the face of continued losses; at which point the new, new owners brought us in to manage the turnaround.
Because underneath it all, once the old MD and FC had been removed, and despite the poor current trading performance and severely distressed balance sheet, there was a good little business waiting to get out, and a frustrated operational management team keen to get on with taking the business in the right direction.
So while the corporate shell is likely to need to go through a process, and cash is having to be managed tightly while a refinancing is arranged, the operational turnaround plan is in essence very simple:
- Retrench back to a core area that is sensible to service,
- Renegotiate prices on contract work where it makes sense to continue to do it in the short / medium term, and exit it where it doesn’t,
- Go back to doing what we used to do to sell services at retail margin.
Or as we would put it, doing the right things, for the right people at the right price.
The result? A turnaround plan that is on course to return the business to profitable trading in the second month, which will then give the justification for the proposed balance sheet restructuring.
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