case study - turnaround practice

Cafe bar chain

Stakeholder: owner.

Business: the operation of 6 cafe bars in one city. Turnover - £3m sales, 70 employees.

Objective: a highly leveraged position resulting from speculative property development had been exacerbated by falling bar takings. The lender was exerting increasing pressure on the owner to realise assets to repay debt and his ability to react was limited by a lack of visibility of the profitability of the business or any of its venues. The first objective was to create financial forecasts and to use them to develop a strategy acceptable to both owner and lender.

Process: management were engaged in producing the first financial forecasts for the business by venue and these were used to regain the lender's confidence. The lender was persuaded to restructure and increase the existing facilities. The forecasts demonstrated that, with management action, the existing businesses could generate cash but this would not be sufficient to repay creditors. The owner was therefore persuaded to market two properties, one as a contingency for the other, in order to repay all outstanding liabilities.

Outcome: one venue has been remodelled and its performance is improving. Another venue has been closed. The completed legal structure of the business has been consolidated and administration and overhead cost reduced as a result. One major asset sale has completed and all outstanding liabilities have been repaid.