Managing life in the Twilight Zone: Director Duties
Lockdown was hard for everyone but for anyone with a business in the hospitality sector, it was game changing. For Kevin McGuiness, owner and CEO of Allen’s Catering Hire Services Ltd, it was uncertain whether his long-standing business would survive.
Let’s go back to April 2020. Kevin was in a similar predicament to many other people in the catering industry. He had taken advantage of the government’s assistance and had taken a substantial loan under the CBILS scheme, so he had cash flow for the time being. He’d acted quickly in cutting costs where he could, using furlough where appropriate and even letting some staff go. For a moment everything appeared stable, and he, like most of us was not expecting the lockdown to last for too long. As spring progressed, surely the cases would go down and we would go back to business as usual…
However, as time went on, it was clear that lockdown would continue, and the company’s cash would not last indefinitely. Kevin was faced with increasing liabilities due to his landlord for premises rent plus the rental due on his fleet of hired trucks, which were not in use, and some had been returned to the hire company. With the company’s financial footing becoming uncertain, it was then that his bankers started to ask questions about the company’s longevity. The bank was pressing for update forecasts, but Kevin hesitated. The existing cashflow projections, which had been prepared by his bookkeepers, were not adequate for the circumstances, didn’t make a lot of sense to Kevin, made the situation look untenable and, if given to the bank, may well have resulted in the rug being pulled from under the business.
Help at the right time
Kevin has been a client at Mercer & Hole for over 15 years and has maintained regular contact with Mark Cassidy, Mercer & Hole’s Audit and Business Advisory Partner. Kevin has always kept Mark involved with his strategic planning, even from the early days of his business. Far from just auditing his business, Mercer & Hole have always been involved with the bigger picture. When Kevin contacted Mark during lockdown, it soon became clear that the coronavirus measures would continue. Kevin would need some expert help with ascertaining whether his business was viable, how long it would last with the existing funding structures and whether it could afford to borrow additional funds to get through to the recovery.
Mercer & Hole’s role was crucial. Mark brought in some expertise from within the firm. Dominic Dumville, Mercer & Hole’s Corporate Restructuring Partner came on board to look at the existing position and build a far more robust forecast with which Kevin would be able to make key decisions. Dominic drilled down into the detail and built a forecast for the coming 24 months, which allowed Kevin to flex and compare the figures for different scenarios. This is where, as a firm, Mercer & Hole could really add value, as it is essential at this point in the lifecycle of a business to analyse the detail of past trading patterns. Without this understanding, it is impossible to accurately forecast and gain the trust of stakeholders, which in this case, was the bank considering a top-up funding facility. When Kevin presented Mercer & Hole’s work to the bank, the cashflows were now far more sophisticated and included ‘live’ calculated fields, such that that they accurately demonstrated the financial position of the business in a number of different situations. The bank was able to overlay its expectations as to the likely outcome and make a measured decision about continuing support.
In summary, Mark and Dominic used their understanding of Kevin’s business together with their experience in advising businesses to quickly get to the heart of the matter, provide critical timely advice and produce reliable reporting on which decisions could be made. The bank was kept in the loop while their work was ongoing via remote meetings as it was still not possible to meet in person, and ultimately its trust in what had historically been an excellent business, was restored. The bank valued the transparent approach to addressing the uncertainty and had ample opportunities to ask questions and to feel involved in the process.
A cash injection when it was needed most
Mark and Dominic’s work paid off and the bank continued its support of Kevin and his business. They could see a business owner willing to pay for expert and sensible advice. Kevin managed to secure additional funding of circa £200k, which was enough to keep the business afloat until trading started up properly again when the lockdown eased. As the economy emerged from lockdown and the wider impact of a pandemic, Kevin was able to be confident in starting up again and taking on additional costs in the knowledge that he was acting in the best interest of the business with figures to back up his actions.
Reorganising the business model
Success in business often comes down to the willingness to be flexible – to look outside and take advantage of the opportunities that are presented. Kevin had always talked to his competitors and been aware of their individual situations. Post-lockdown was no different. Allens Catering had a much better summer once the initial lockdown was eased, and clients rushed to catch up on postponed engagements.
However, the catering sector is seasonal, the covid crisis was still very much in peoples’ minds and Kevin did not rest on his laurels. He visited a number of smaller companies to see how they were faring. In short, not good. Kevin’s sure financial footing in an uncertain marketplace presented an opportunity which he made the most of. Since the end of lockdown, Kevin has made great strides into geographic regions via mergers and joint ventures with other less secure businesses. What was different in his approach was the business model he had fine-tuned in consultation with Mark over years. Rather than paying for outright acquisitions, he was able to come alongside struggling businesses to give them a degree of financial certainly and benefit from their existing presence in a new region.
With the bigger picture, long-term view in mind, some of these transactions were more akin to joint ventures where the existing owners were offered a share in profits generated by Allens Catering in their market place.
The biggest challenges
Alongside the financial pressures and liabilities, the overarching challenge facing Kevin and his business was the complete lack of control he had over his situation. As with other hire businesses in the hospitality industry, the liabilities – the vehicles, equipment and rented properties – meant that he couldn’t just shut down and resurrect the business once the pandemic measures were eased, as this type of business holds all the risk with the assets. Alongside this is the seasonal nature of the work with many smaller bookings made at very short notice. These factors make this case particularly high risk and further demonstrate the crucial part that expert financial assistance played in the success.
Strategy for success
Kevin’s strategy for success lies in the quality of his already perfected business systems and ability to make quick decisions when opportunities arise. His flexible approach plus his willingness to seek advice quickly, and invest in expertise gave him an edge, especially at a time when cash was tight. Undoubtedly this investment paid off. His open mindedness to gain help and to make difficult decisions quickly, essentially saved his business and his livelihood. The stakes could not have been higher, and the wider impact of his success is demonstrated in the businesses he merged with and the new depots and stock he acquired. He recognised what he could not do for himself and needed the support of Mercer & Hole and together acted quickly, which is at the heart of good business acumen.
Kevin was able to ride out the covid storm, plan for better days and use the covid crises to his advantage to grow the business in the long term. He will now be looking forward to 2022 to grow the business, bed in the new geographical locations and to take on more market share.
Business: Allen’s Catering Hire Services Ltd – Visit Website
Owner and CEO: Kevin McGuiness