Dealing with serious problems: late payment of suppliers, unpaid PAYE and VAT
We were asked to work on the turnaround of a traditional UK manufacturing business, a group of three companies with two factories, two engineering design offices and based in three locations across the UK. There were many issues but the most pressing was that the company had exceeded its borrowing covenants. Turnover had fallen from about £30m to below £20m and suppliers were not being paid on time. The consequence of this was that materials were not being delivered and that was holding up production which led to delivery delays and made the company look unreliable from its customers’ perspective. This is a series of problems that can lead to failure.
The company was producing overly optimistic cash forecasts, which were consistently missed and preparing inadequate financial reports. The finance team was good but was top heavy and poorly led, in consequence of which the finance director and financial controller both left.
We set about improving cash management and building confidence across the client’s supplier network. This takes time and effort but we were able to persuade suppliers to revert to providing goods on credit. This meant that we could keep production flowing which had the effect of improving manufacturing efficiency and keeping customers happy.
As we frequently see, this company had fallen behind with PAYE and VAT. We successfully negotiated time to pay arrangements with HMRC and that enabled the group to work its way out of the overhang of excess debt.
One particular problem in this instance was that the relationship with the landlord had broken down and the landlord was refusing to renew the lease on the main factory and design office site. Had this problem not been fixed it would have caused a significant and potentially fatal problem; the additional costs of relocating would have been huge. We were able to persuade the landlord to re-engage with the company and the lease was renewed.
This turnaround was driven by the lender. By fixing the other problems, we enabled the company to reduce and better manage its borrowings. The group returned to growth and, even though it has been hit by the Covid crisis, this business continues to add clients, increase its order book and grow its manufacturing.