Serious financial indigestion for a sinking food business
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It is frustrating to sit by and watch a perfectly good business drown in debt. That is the situation for a two-generation family food business in Queensland. The first generation owner of the company, who has been a friend for years, would dearly like my help as I have helped many businesses in similar circumstances in the past.
As co-founder and owner of the underlying property, there is much to lose because the real property assets secure the bank loans. The eldest offspring is the CEO and with one residential property and a salary on the line, all help is refused. I guess it’s the same old story of misplaced pride and family responsibility.
Family members occupy all key positions. None has any form of business related qualification and no experience outside the company. They are all trying their hardest but they simply don’t know what they don’t know! They need specialist help.
When your closest competitors are the two largest supermarket power houses in Australia, a seasoned team of retail food professionals is required.
This business like many other family businesses is passively managed. It is there simply to provide a living for the family members. It follows many of the same management practices that the first generation put in place 50 years ago.
The real problems began when company over-borrowed before the GFC to fund an ambitious expansion. The plan was to enter the wholesale food business.
All that really happened was that their interest expense and inventory costs rose sharply. With skinny wholesale margins, it didn’t make enough of a difference to overall sales revenue.
Since then, relentless competition, falling sales and decreasing asset values mean that the value of the debt package now exceeds the value of the business. The business is in real trouble!
The very conveniently located retail shop / land package is being sold to reduce debt. There goes the only bright spot on the revenue horizon. A new retail operation will be spawned out of the company’s storage facility in the middle of an industrial area. Wow! That’s a big call.
I may eventually get a desperate call to help but that will be after the family implements its own strategies and it will be all too late. If history is any guide, I will be going in mere days ahead of the receivers.
Gary Weigh & Associates – top business consultancy Australia – no BS advice!