I recently read an article in The Caterer , indicating that Prezzo is doing the right thing regarding its CVA being approved by its creditors – Their losses have been halved.
It left me thinking, what should directors do once a CVA has been approved? Well, quite frankly, they should follow Prezzo’s example. Yes, Prezzo is a big chain of restaurants but, what the directors are doing, in reality, any director can do in some form or another. So, what is it that is being done? In my view there are 3 fundamental things:
Ok, that is a bit flippant but lets look at it more closely.
- After the CVA was agreed Prezzo changed the management team by appointing Executive Chairwoman, Karen Jones. In small businesses it may not be that easy to change in this way, but management really should consider changing their structure. Perhaps responsiblities could change, maybe someone should be let go or even promoted?
- Change the strategy or focus on fundamentals. Karen Jones said the company was now focused on ensuring customers left wanting to return after a period where a “strategy of new openings and new concepts distracted from its mission of hospitality”. In hindsight that seems so obvious, a returning customer is worth so much more as you do not have to spend loads of money to get them back.
- Change your financial controls. The company’s directors will need advance notice of any problems and the rigour of the process means that they must have good management information. Poor financial records is the principal reason that companies become insolvent.
Investing in the future is the next big thing. Finding new money to carry out change can be a challenge. Debt for equity swaps can work in larger businesses where the lenders see an opportunity down the road. Debt relief can increase working capital by improving cashflow. In smaller businesses, creditors like to see that directors and stakeholders are putting money in. So, maybe sell some assets or try to raise other sources of finance. Lenders will lend to companies in a CVA as long as they are happy that the changes mentioned above are happening and any forecast is realistic.
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