A company Turnaround Plan

The client was a successful and profitable business, but when one of its major customers was placed into administration, it was left with a large outstanding debt, causing an unavoidable deficit in its cashflow. Existing suppliers and HMRC were demanding payment and the company’s Bank wanted to know if the company was able to recover from this bad debt and continue in business.

An immediate review was undertaken and following a meeting with the business owners, a strategy was agreed and put into place. The first stage was to undertake a review of the cash position and agree how the Company’s cash obligations would be met. Advantage was taken of HMRC’s “Time To Pay” plans to spread the cost of outstanding tax and VAT. Short term extended terms of credit were agreed with key suppliers and expressions of interest were sought from potential investors to inject much needed working capital.

The administrators of the bad debt customer were contacted and a letter confirming the dividend available for distribution to its creditors was nil was obtained. This allowed the client to reclaim the VAT on the bad debt immediately and not have to wait 6 months before benefiting from the VAT credit. Negotiations with the Bank allowed the Company to benefit from a short term overdraft facility, whilst the plan was carried out.

Negotiations progressed with a potential investor and a nonrefundable deposit was secured. The Bank agreed to continue with the overdraft facility while the investor carried out its investment due diligence. A personal guarantee was obtained from the owner thereby preventing the Bank from taking an equity position on the funds lent, which would have significantly increased the bank charges. The nonrefundable deposit from the investor was intended to cover the cost of the disruption to the business during the due diligence process.

The investor’s due diligence and contracts were completed. The Bank remained in place under the original facility and the working capital injection from the investor removed the pressure on cash. The company returned to profitability, and the owner was able to return to running and growing the business.

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