|Case Study 7|
1. Original predicament
The group was faced with a number of continuing and significant projects having lost a key employee. The financial position was precarious with a large negative cash outflow. The board was mainly ignorant of the day to day detail of the redevelopment plan due to reporting timescale slippage and was also largely unaware of the consequences for the group as a whole due to lack of data. Information from subsidiaries, especially the foreign ones, was inaccurate. To complicate matters even further, some of the other related businesses were found to be financially insecure. The group board was from a varied background, some of whom were not businessmen, and none had the required qualification to substitute for the vacancy. There was a need to protect the business, secure finance, implement controls, monitor the ongoing projects, clear the accounting backlog, prepare and issue meaningful accounts, verify all foreign currency transactions, ascertain the basic problems and provide solutions, prepare forecasts for the future trading and automate wherever possible.
2. Suggested solutions
That the group be sectionalised into areas of comparative calm and ones for immediate action. A multiple solution was proposed with extra accounting resource to clear the backlog, extra specialist resource to diagnose the problems, extra professional resource to deliver the answer for speedy and controlled management information at all levels. Both sterling and foreign currency cashflows needed immediate and significant action due to the size of the ongoing projects. This action was complicated by the multiple array of bankers, financiers and bank accounts. A series of meetings were organised with bankers and financiers to obtain backing. The effects of the projects needed to be financially monitored and this was organised through a series of initiatives. The information systems were outdated and totally inadequate for an organisation of this size and it was proposed to overcome the shortfall by utilising a two staged plan to bring them more in line with current requirements.
The tide was turned and the group was saved. Extra finance was gained from banks and financiers and additional key staff appointed. The personal exposure of the directors was protected and the projects were given high powered new management. Certain bad practice was highlighted and terminated. The accounting backlog was eradicated and all reconciliations brought up to date. The levels of expertise and control were radically increased over multi currency transactions and within the foreign subsidiaries. A sophisticated 5 year consolidated forecast was introduced incorporating analysed profit and loss accounts, balance sheets and cashflows for both sterling and foreign currencies. This ensured that future progress could be measured in detail against a series of pre-set targets. Regular reporting was introduced both internally and externally to enhance control. Also sales data was analysed in much greater depth and the quality of all information was much improved. A system of automated consolidation of monthly management reporting and statistical analysis was programmed into a rigid timetable. New costing bases were introduced into the manufacturing subsidiaries and new systems installed. New controls were implemented over data collection to guarantee its authenticity.
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