CASE STUDY – GETTING OUT OF A HOLE
The client had been in Demolition and Excavation for 20 years and had banked with one of the 4 major Banks’ for that time. The business operated in both the Commercial and Private markets.
The business had changed substantially in the recent 5 years with a heavier reliance on Commercial, of which a large portion was for the Education and Health Departments. The delays caused by the bureaucracy of decision making made cash flow unreliable and several temporary facilities had been sought from their Bank. When these facilities could not be repaid the Bank sought current financial information including budgets.
The Director’s wife, who did the bookkeeping, provided budgets in a format prescribed by the Bank. Some months later when the budgets had not been achieved the Bank moved the client to “Bad Bank” and appointed an Independent Accountant (IA) to review the business.
The Director contacted Weybridge to assist with the preparation of the substantial amount of data required by the IA. The fee quoted for the IA indicated to Weybridge that the Bank had already made the decision to make a formal appointment and close the business.
Weybridge was able to buy time from the IA to enable the information to be properly collated. Over 3 weeks Weybridge:
- Restructured the Chart of Accounts to enable the current year management accounts to be provided in a format which allowed meaningful analysis
- Ascertained that the method of depreciation of 53 Chattel Mortgages was inappropriate, amended and adjusted historical and YTD expense and liabilities.
- Identified the profitable and unprofitable contracts in hand
- Analysed the expenses of the past 5 years and identified significant capital expenses which had been treated as operating expenses thus undermining the profit of the business.
- Identified a range of inappropriate funding lines which had undermined the cash flow of the business
- Identified that BAS reporting on a cash basis was, in this case, detrimental to the cash flow of the business.
- Worked with the Director and the bookkeeper to build budgets for the ensuing 12 months based on a change in the mix of Commercial/Private work, restructure of funding lines, restructure of arrangements for ATO debt and a change in BAS reporting from Cash to Accrual.
- All Bank facilities were secured by Property.
The presentation to the IA included a request for an additional $50,000 in working capital funding and a hive off of “hard core” portion of the Overdraft to an interest only Term Loan facility to reduce the monthly interest cost. 3 major items of machinery were to be refinanced outside of the Bank to enable appropriate terms and residuals to be put in place and put $20,000 per month
back into the cash flow.
All changes to facilities were recommended by the IA and approved by the Bank on the proviso that Weybridge was retained to provide management accounts to the Bank on a monthly basis. At the end of 3 months the client was moved out of “Bad Bank” and back to the Relationship Business Banker.