Turnaround & Restructuring of a Retail Business | Groves & Partners

Background

Our client, a retailer in Sydney had a major problem: they had been consistently finding themselves short on cash to pay suppliers and had effectively decided to wind down their business before it was insolvent. The client operated in a tight market with several competitors operating in close proximity. There had long been increasing costs and a lack of financial direction. 

The client’s business was experiencing significant challenges, including:

• A material decline in revenue over the preceding 12 months;
• COVID-19 restrictions had impacted the ability of customers to shop instore;
• Continued managerial staff turnover;
• New competitors had entered the market; and 
• Consumer shopping trends had changed over the preceding 24 months. 

Most business owners tend to focus on growth strategies and increasing revenue which will in turn increase your profitability (usually, not always). But these strategies don’t work for every business, and this is especially true for more mature businesses which are already experiencing decline and a lack of capital. 

How We Helped 

We initially took on the client to assist them in winding down the business, selling assets, and terminating staff. However, once we got a better understanding of the client’s financial position and solvency, we had one simple question for the client: “Why are you closing the business?”. After some discussions with the client, they ultimately decided to try to save the business. 

Senior Advisor at Groves & Partners, Andrew Whittingham, was engaged to review the business and prepare a Turnaround Roadmap. Once the turnaround strategy had been set, Andrew was retained to assist management in implementing the turnaround initiatives, including:

1. Cash flow management – we implemented 13-week cash flow forecasting and trained Management on how to use it as a management tool.
2. Budgets – we implemented long-term monthly budgeting tools to better project the future financial position of the business. We also implemented controls over purchasing inventory and a budget for staff wages. 
3. Inventory – we initiated a discounting policy for slow-moving and obsolete stock, which had an immediate positive cash flow impact.
4. Premises lease – we negotiated the renewal of the lease for the client’s premises, where they had been operating for over 30 years. The landlord relationship had broken down, the business was on a month-to-month agreement and the landlord had provided notice to vacate. 
5. Product margin review – we analysed each product line to understand the volume of sales and margins made. We worked with the client to remove unprofitable and low volume product lines. 
6. Staffing restructure – we reviewed the staffing structure of the business and advised on a restructure of the staff to ensure a better fit for the current state of the business.

Return To Stability and Profitability

Over the course of 6-8 months, we had achieved our goal of returning the business to stability and profitability, even though this coincided with a significant drop-off in revenue over the same period. The average monthly profit has improved significantly since we implemented our turnaround and restructuring advice. In fact, we were able to achieve a 154% increase in Average Monthly Net Profit Before Tax, despite a 24% deterioration in Average Monthly Revenue.

By returning to stability and profitability, the business was able to continue as a going concern. The initiatives which we helped the client implement have also provided a platform from which the client can continue to grow a sustainable and profitable business. 

Find Out More 

Groves & Partners are experts in turnaround advice and have significant experience in advising clients on improving the value and operations of their business. Contact one of our team today to find out how we can partner with your company and assist.