28 January 2022

Is your business fundamentally viable, but held back by an inflexible cost base or loss-making contracts?

After identifying the key internal and external factors adversely affecting performance, changes can be made to reset your business, ensuring it is best placed to compete in the current trading environment and to exploit future opportunities.

How to reset

To reset your whole business or a particular division it is important to understand the options available, the associated benefits and the step-plan required to deliver changes:

Streamlining operations

Optimising business processes can help a company achieve its potential, save time and minimise costs and risks. Efficient working capital processes are crucial – for example, automating the receipts and payments processes, or introducing a payment platform can lead to considerable efficiency improvements.

Reducing operational costs

Every business wants its expenditure to drive profitability and ensure the customer experience is maintained. A budget should factor in the needs of both the business and customer expectations together with optimising costs, including those associated with property rental, utilities, personnel and supply chains.

Exploiting new markets

The change in behaviours dictated by the pandemic has created a range of new markets, often at the expense of existing markets. It is vital that you understand your market and identify the options and the routes to it: Many business models are changing, and that’s creating a range of opportunities.

Exiting loss making contracts

Macroeconomic issues are undermining the profitability of some existing contracts. In many cases, end users are not prepared to renegotiate fixed-price contracts – despite the significant increase in key input costs. In many cases, historic competitive tendering processes mean these contracts have become uneconomic, so it’s essential to renegotiate or exit from them.

Strengthening the balance sheet

Improving your balance sheet can optimise cash flow and clarify your company’s financial position if you’re seeking investment or thinking of taking on additional debt. Improving the balance sheet may include maximising investments, efficiently using capital, and boosting your business’s cash generation.

Protecting investment

The pandemic has fundamentally changed many investment models. Businesses affected in this way may require rapid restructuring to enhance historic and current investment. In the past two years we have protected and enhanced over £350m of investment. 

Our method includes identifying and evaluating potential strategies and understanding the interaction with the various stakeholders in the business. This includes looking at:

  • Management incentives A company’s value may be significantly affected by issues including the pandemic, a shift in the market, supply chain problems, or inflation. As a result, performance and valuations have been undermined with a critical impact on management incentivisation schemes. Aligning management interests to ensure these key stakeholders are motivated and their interests match those of shareholders is essential.
  • Ringfencing liabilities or onerous contracts can reduce the associated drag on profitability and cash. This this can be implemented through negotiations or a formal restructuring process, and would typically form part of a wider reorganisation to maximise stakeholder value and protect investment.
  • Selling non-core assets Peripheral and non-core assets can drag on management time and investment. In many cases, overall performance and returns can be improved by exiting these assets through appropriate divestment strategies and supporting processes.
  • Funding / financing A company’s capital/debt structure may be undermined as a result of underperformance, or a change in the investors’/enders’ strategic direction. As part of a reorganisation, it is worth considering the appropriateness of the funding structure required to support short- and long-term ambitions.
  • Supplier payments to improve working capital efficiencies Cash is the lifeblood of any company, and there are times when supplier payments have to be deferred or compromised in order to improve a company’s cash flow. This may be done as part of a general working capital reorganisation, including discrete supplier negotiations to alleviate short-term cash pressures.
  • Implementation of cost reduction processes Certain changes can be made swiftly, allowing management to deliver additional value. This requires good relations with a variety of intermediaries – property advisors, operational experts, solicitors, funders – across a wide variety of sectors.

How can we help?

Our team of experienced professionals can help with:

  • A detailed step plan – which is an essential part of any reorganisation. It ensures that each stakeholder understands their role and responsibilities, the time frame, and the overall direction of travel. Our experience means we can assist in preparing the step plan, ensuring realistic timescales are included, and overseeing the implementation of the overall plan.
  • Stakeholder negotiations – as we have considerable experience in dealing with a wide range of stakeholders, including coordinating sometimes competing interests to ensure the optimum outcome.
  • Reorganisation tools – we can employ a wide variety of tactics and restructuring tools to effectively and efficiently reorganise a company. In recent years we have delivered numerous consensual negotiations, together with more than 20 company voluntary arrangements, which have: protected £350m of investment, saved 6,000 jobs and kept open over 450 high street stores. Our team also has recent experience in assisting with negotiations and implementing processes to exit contracts that undermined a business’s viability.

Contact Damian Webb or Gordon Thomson today to discuss your current circumstances. 

Damian Webb
Damian Webb
Partner and co-head of Restructuring
Damian Webb
Damian Webb
Partner and co-head of Restructuring