Describes services provided to ailing companies when, having put in place the basic strategic cures required for their illness, a period of intensive monitoring and nursing back to good health is required. Sometimes the illness is discovered too late or is too serious, and may be incurable. In such cases, the best that can be done is “damage limitation”. In other cases, the process will be more successful. What is certain is that the cure alone is rarely enough. Without a period of intensive nursing, most ailing companies will continue to struggle.
As to techniques, the Company Nurse should be prepared to act as a part-time (financial) director, assisting board decision-making on critical areas. Monthly management accounts on an historical basis must be accompanied by longer-term (up to 12 month) projections, and it is essential that these are regularly updated to reflect current knowledge – fixed budgets are valuable in these circumstances only for filing purposes! Regular visits to the company facilitate the essential day-to-day decisions on cash control, and need to be supported by 6 or 7 week cashflow projections. Considerable effort needs also to be devoted to debtor and creditor control.
We have specialised in company nursing and turnaround assignments since 1990, and the following brief case studies give some examples of our recent and current activities:
At the beginning of 2000, 3i, Europe’s leading Private Equity Firm, recommended our involvement with EAT, a chain of 18 London based sandwich shops in which they had invested and which had recently encountered delays in its expansion plans. Management welcomed the benefit of our outside assistance at a crucial point in their development of the company.
Following a process of re-organisation, in October 2001, Stephen was appointed to the Board as 3i’s nominated non-executive Director and worked with the Board in the development of the business to 45 units by August 2005, including 8 out of London shops and a successful first franchise operation at Gatwick’s North Terminal. In August 2005, the company succeeded in obtaining funds for its next stage of development to 100 shops, in a process which valued the company in excess of £20m and allowed 3i to exit its investment successfully. Accordingly, Stephen also resigned at that time, and is convinced that the company, through its excellent brand, innovative food offering, top quality people and service levels, will continue to thrive in the future.
When we first came to this company, a redundancy programme was already under way, reducing the number of chargeable employees from 30. Cash was tight: factoring was introduced, and a process of negotiation with Customs & Excise and the Inland Revenue was initiated. But the cost-cutting was inadequate and merely reactive. A “white knight” was found to provide much needed funds. In an ongoing role as part-time FD, this company was gradually nursed back to health and then into successful ongoing profitability and growth. From a starting position of a £400k hole in its balance sheet, this company was sold to a trade buyer 7 years later for £16m.
This company had grown its turnover at the expense of its bottom line. With a strategy in place to reduce overheads and turnover, whilst seeking higher gross profitability on projects, my initial work involved heavy emphasis on short-term cash controls. As this was taking shape, the emphasis moved to the development of phased monthly profitability controls on a project-by-project basis, which has since developed into a company-wide forecasting system for profit and loss, cashflow and balance sheets. The company is now comfortably cash positive.
A London car hire and taxi company had been incurring ongoing significant losses for more than a year when we first became involved. Introduction was by its bank, who, whilst well secured, were concerned about ongoing breaches of facilities.
We carried out cost reviews and introduced control systems to monitor and forecast performance much more closely, but there had been a fundamental problem of trade falling away in a competitive market against a relatively fixed based infrastructure of costs.
The solution would be to find another operator in this field who could absorb some of their overheads, but this process was too lengthy to prevent the insolvency of the company becoming untenable and ultimately, a Creditor’s Voluntary Arrangement was agreed which, in itself, wiped sufficient debt off the company’s balance sheet to render it solvent and give an opportunity to continue trading and to partially pay off its creditors over a few years. Following that CVA, the company became a much a more attractive proposition to potential suitors, and a disposal of the trade (for the significant benefit of its shareholders) was finalised.
We were called in by a major private equity player in an FD support role at a time when this group was losing money, and running into unforeseen cashflow problems. We worked closely with the management to review the costs of the business and to assist the MD and the new FD with focusing on the under-performing areas of the business. At the end of this 10 month assignment, this group was in considerably better shape, our assignment was essentially completed, but we did advise further, as required, on other development activities.
A requirement from the same private equity firm as company D to assist with the development of a profitable but underperforming company. This twelve month assignment once again required the support of the FD, implementation of cost reviews, identification and control of key influences on cashflow, and the development of previously absent forecasting systems. This company may continue to face commercial pressures, and a new Chairman has been introduced with a view to taking the company forward.
Following a review by a major insolvency practitioner for another bank’s business support unit, the insolvency practitioner recommended our involvement in trying to turn the business around. Major work was started in July 2010 to reduce costs, sell off unneeded assets, refocus sales efforts, and produce a working business plan.
Joanne Stoneman had ongoing involvement with this business, eventually introducing an active working investor into the company in November 2011, which marked the successful termination of this assignment.
In our view, the purpose of what we have defined as ‘the company nurse’ is little more than to ensure survival until the company is able to sustain its profit and cash lines, but our assignments have at times continued in a part-time FD or non-exec role. Company nursing activity is highly “hands-on” work, and requires the maintenance of basic health functions within the client’s business. Above all, nursing back to a reasonable state cannot be achieved if the underlying business is so weak that it cannot achieve a reliably targeted sales line.
The need for working capital control continues to be vital at all stages of the economic cycle. Not all directors are keen to recognise that they may have a need for such nursing services, but the issues of monitoring, directing and control are always crucial.
Most businesses will benefit from financial assistance at some time in their growth and we will be pleased to offer assistance in seeking the ideal finance deal for your venture. We have acted successfully in the roles of interim or part-time director for a number of companies in both executive and non-executive roles. Roles of this nature may be accompanied by investment.
Please contact us on 01908 227055 if you have an interesting proposition.