Situation

We were introduced to a company involved in the provision of permanent and temporary labour to the construction and engineering industrial sectors. The introduction came from a potential finance provider who was keen to replace the existing provider (£100k overdraft and £850k full factoring facility).

Task

The company was profitable with turnover of approximately £7 million, but had a number of financial issues:

• poor historic financial information
• no budgeting or forecasting procedures
• reliance on two key clients, both low margin and poor payers
• substantial level of unapproved trade debtors (c£600k) on its factoring facility
• arrears to HM Revenue and Customs
• a finance team with unclear roles

The Finance Team had all been in place for less than one year and the company had changed external accounting advisers in each of the previous three years.

Action

We worked intensively with the company over a four-month period and achieved many successes.

The company significantly changed the way it approaches financial management and in particular the preparation of management accounts, financial projections and cash management.

As a result of our review and assistance, the company also adopted a number of Key Performance Indicators which allowed the quality of customers they were working with to be evaluated, thereby allowing greater focus on important items including gross margin and cash collection.  This encouraged a change in the company’s sales strategy and enhanced profitability and cashflow.

The roles and responsibilities of the Finance Team (four staff) were also reviewed and changed to meet the needs of the business and the skills of the team members.  All staff were given a clear understanding of the role they play within the business and the importance of what they do.

We introduced a monthly reporting timetable which highlighted the work required and various roles and responsibilities to allow the team to produce management accounts accurately and timeously.  It also allowed the Chief Executive to focus more on the sales strategy and general direction of the business.

The previous finance provider was replaced and as a result of the changes to the financial management of the company, the new provider was able to offer a Confidential Invoice Discounting facility of £1 million, rather than a full factoring service.  The financial impact of this change resulted in reduced interest and related charges of over 50%, saving the company in excess of £70k per annum.

The new finance providers have commented on the significant change in approach and the new level of professionalism within the company.

At the start of our role there was over £600k of unapproved debtors on the factoring account and at the time of facility transfer this was less than £20k.

Craig Alexander was retained on an ongoing monthly role to assist the Finance Team and senior management in many different aspects, including a part-time Finance Director role, and is was fully involved in all key business decisions as a valued member of the senior management team.

The senior management team met with Craig Alexander formally once a month to review the previous month’s results, discussing variances and the impact on the future.  The company is now using this financial information to run the business whereas before it had limited visibility of its financial position, and was reactive rather than proactive.

The Chief Executive, shareholders and new finance providers were extremely happy with our role and all introduced new opportunities.

In summary this role started as a specific short-term project, but changed significantly as more information was “uncovered”.  The role shows the flexibility and commerciality of our approach, and also the effectiveness of supplementing strong operational management with our support.