Business Viability – getting the right advice at the right time is crucial!


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Business Viability – getting the right advice at the right time is crucial!

When financial difficulty starts to loom over a business, even the best business owners can go into some sort of denial, resulting in an unwillingness to accept the reality.

Often business owners will say things like:

  • I’ll be ok, next month will be better!
  • I’ll keep going, things will turn around soon!
  • I’m not ready to give up!
  • We’ve always done it this way; it must be right!
  • We are happy with our current methods!

Even though some owners know that the survival of their business is becoming questionable, they find it difficult to reach out and ask for help. Even worse, some are totally oblivious to it.

What they need most, is to be guided towards early professional help, where a detailed review of their financial performance determines the true position and future viability of their business.

Outlined below is just one business case demonstrating how the dVT Group helped a business determine the ongoing viability of their business.  Options were identified and recommendations were made, that allowed the business to continue trading and safeguard over 20 jobs.

Situation

dVT Group was recommended to this business by a major bank, as they were experiencing a lack of profitability and severe cash flow issues.  The bank, although well secured via real property mortgages were concerned for the business’s future.

After some hesitation, the Directors made the decision to engage dVT Group to review the businesses.

Actions

It was very evident that the structure and accounting for the business were unnecessarily complicated and were not understood by any of the stakeholders.  We trained the staff on how to implement cashflow forecasting and this enabled them to populate and understand the numbers to the point where they were confident in using the information produced. dVT Group, set about helping the business implement a simplified cash flow statement leading to a profit and loss statement.

Further, there were no measurement tools in place to monitor profitability and productivity.  We implemented product costing and KPI measuring tools.  This simplified approach was well received by management who finally understood the consequence of some of their actions.

Next, we introduced workflow improvements, job costing and KPI’s, to assist with profitability.  This was more difficult, as the business had to come to grips with time, cost analysis, together with properly allocating costs to jobs. Then staff had to be advised of the new output measurements, something they had not been used to. There was some resistance, but once implemented, management was able to understand which products made them the most money and could concentrate the sales on those lines. The productivity increases were almost immediate as the workers had not had an expectation put on them previously, they had nothing to measure output against.

The above together with a general price increase resulted in positive cash flow within a month and profitability shortly thereafter.

Outcomes

Unfortunately, the relationship between the business and the bank had been strained due to COVID and other extraneous issues so much so that it was amicably agreed that the business would refinance.

Given its turnaround, this process was much easier to pursue than at the beginning of this project.

This case highlights that no matter how dire things look, with the right help there may be a favourable solution.  One thing is certain without help this business would have shut its doors.

Should you wish to talk about how we can help a business determine its future viability, please contact Riad Tayeh on 02 9633 3333 or mail@dvtgroup.com.au.

dVT Group is a business advisory firm that specialises in business strategy, turnaround, forensic investigations and insolvency (both corporate and personal).