The following case study makes reference to two trading hotels located in the Lake District National Park
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Hotel A
57 en suite bedrooms
2 restaurants
Function suite
Lounge bar
Leisure complex
Loan amount: £4.7m
Hotel B
48 en suite bedrooms
Walker’s pub
Restaurant
Conference room
Fitness centre and swimming pool
2 cottages
Loan amount; £3.4m
Both hotels employed a combination of 120 full and part time staff.
The issues the companies were facing were the following:
• Sales had decreased £126k
• Wage costs £151K overspent to industry norm
• Food and beverage margins (GP) exaggerated due to over allocations of residential accommodation splits (leading to over purchasing)
• Operating profit margins declined year on year
• Lack of Management Information
• No real time accounting
• Requirement for capital expenditure
• Concerns over level of borrowings and impact upon cash position
• Projections identified £241,292 cash shortfall
• HMRC schedule (TTP) payments had fallen behind by £241k
• Overdraft facility of £100k hard core
• Creditors arrears three months plus £95K
Introduced by the bank to review the trading and operational management structure of the business
The bank required an operational management strategy to effect cultural change within the business to manage cash pressures which included principle loan repayments and creditor payments
Onecall Hospitality’s skills and competencies are listed below:
Financial & Operational
• Introduced a revised cash management system
• Introduced a firm of commercially minded accountants – the hotels management had no control of the day to day finances. The newly appointed accountants were tasked to provide monthly financial reports and critical payment analysis, thus allowing myself to effectively manage the cash position
• Negotiated reduced payment terms with Bank – The principle loan had an associated fixed term rate and derivative. The bank recognised that these products were not suitable in the long term and agreed a restructuring onto standard and capital interest terms. This saved in excess of £140k a year additional interest charges
• Prepared forecasts for submission to Bank – As part of the loan restructure the forecasts were accepted.
• Prepared rolling 13 week cash flows
• Introduced critical repayment schedules
• Introduced cost of sales management – provided Heads of department with profit centre forecasts and associated controls and records to include daily food and beverage purchase reconciliations and daily wage analysis performance indicators. Historically, the hotels had relied on quarterly profit and loss reports. The introduction of the controls meant that costs were being managed daily and not retrospectively
• Weekly meetings to review and monitor the KPI’s that were set up for each department
• Implemented and effectively managed a business strategy to support business profit generation
• Prepared monthly financial management reports for the bank and measured these against projections and KPI’s
Change Management
• Implemented weekly staff wage cost planning by department in accordance with known sales
• Implemented a sales and marketing strategy together with a qualitative database and yield management program to assist with profiling
• Staff were trained in communication and attitude, customer service and guest experience ‘up selling’ and sales and marketing
• Management became part of the change of culture
Stakeholder Interface
• Worked closely with the banks restructuring management team and the director’s accountants in order to agree and support a turnaround strategy
Outcome
The business gained support from the bank which allowed for continuation of the business against a background of intense cash-shortfall (insolvent)
The resultant support allowed a positive cultural change which continued to be developed
The bank offered a restructure of debt to include debt forgiveness (£4m, based upon a refinance proposal), which in the long-term resolved inherent problems
Operational profit management improved. The term loan was not reduced however as a result of the restructuring, allowed for cash to be available to reduce the overall burden of creditor and HMRC debts
Year on Year 201? v 201?:
Sales Up £174K
Purchase costs reduced by 1% – saving £30.7K
Wage costs reduced by 3% – saving £46.2K
Total positive cash impact on the business £250K