Administrator

Jo Wright, Founder and Managing Director of De Novo Advisory shares her experience at Further Education Women’s workshops.

The Women’s Leadership network held four workshops in March, two focused on getting more women onto boards, and two others focused on getting more women to consider being actively involved in finance and audit committees.

These focused and interactive workshops were attended by a total of 44 women at the City of Oxford campus and the City of Bristol College conference Centre. The overall feedback and response for this event series has been excellent. Attendees joined from a range of private and public sector including; Activate Learning, Morley College, Wiltshire College, Sussex Down college, John Ruskin College, City of Bristol College, Bath College, Mountlands College, Maranatha Language School, and AOC.

De Novo’s founder, Jo led a session on ‘Management to bring stability and enhanced value’. Over the last four years Jo has immersed herself into the Further Education sector, motivated by genuine interest and concern for colleges facing demands for rapid transformation. Many are lacking the skills, resources and importantly strong leadership to secure an improved and sustainable future. She focused on how to spot the early warning signs, why organisations fail, what transformational change is affecting the sector and which skills and experience are required to lead an organisation out of a challenging situation. Jo shared recent case studies but also offered a personal account of the obstacles and benefits she has experienced in her career.

“The Further Education sector suffers from the effects of under resourced and skilled leadership and governance teams, who simply do not have the essential experience needed to adequately address the immense financial scrutiny, pressure and other stringent requirements they are now facing. Ahead of new Insolvency legislation taking effect, lenders are also mitigating risk wherever possible, and alongside the ESFA, they are insisting strong Management and Governance teams are in situ to really drive the transformational change needed to secure viable and sustainable colleges. The right team is critical to future success” remarked Jo.

“Achieving better balanced and more effective teams, from workforce level right through to senior management and governing bodies can be aided by recruiting and engaging with a diverse cross section of people, and importantly, ensuring they are developed as individuals irrespective of gender. Employers must focus on the skills, knowledge, experience and potential of their teams to create an inclusive culture that identifies and progresses top talent into their senior roles.” concluded Jo.

Feedback from workshops included, “insightful, very worthwhile, thought provoking,” and “I feel more confident in applying for a board position”. Given the success of the events, the Women’s Leadership Network are exploring further events nationally on this theme.

Jo Wright’s article on FE sector transformation was published by TES on 29 July 2016, entitled Seize the day or you could be heading for disaster.

This Government has embarked on a mission to transform the Further Education (FE) sector, driven principally by funding cuts, apprenticeship reforms and Area Reviews.  The pressure to significantly improve the health of this sector is further exacerbated by the reduction in the 16-18 year old population, inherent ambiguity surrounding government policy and a further uncertainty following the Brexit decision.

“The programme to transform the FE sector is necessary, however we are concerned about the underlying practical elements that will be essential in the successful outcome of this vision.” Jo Wright, Managing Director De Novo Advisory.

The overall aim of this initiative is double faceted – improve the financial health of UK colleges whilst ensuring that local education and economic needs are met. We consider, what does this transformation actually mean for the management teams expected to deliver it, and do they have the requisite skills to take on the challenge?

Jo continues “Managing the complex stakeholder matrix is absolutely crucial to success.  In particular, lender appetite has changed leaving a sense of unease regarding financial exposure.  Continued lender support remains critical, and to secure this, it is essential that a clear, fully costed and robust business plan is delivered, which not only encompasses a realistic merger timetable, but also provides clarity on how any merger is likely to impact the financial stakeholders.  We have many years’ experience of stakeholder management and we recognise their demands can at times be overwhelming, especially when interests are not wholly aligned.  Having the right expertise to effectively manage the stakeholder matrix is another key element.”

A credible forward plan is essential not only for incumbent lenders considering their ongoing position, but also for applications to the recently formed Transaction Unit.  Whilst restructuring is beneficial in the medium to long term, it will inevitably attract short term costs, which may not necessarily be fundable through existing lending facilities.  In cases where funding cannot be secured from elsewhere, there is now a Restructuring Facility (within the Transaction Unit) available to support the implementation of recommendations from the Area Reviews.

The guidance on applications to the facility emphasises the one off nature of the restructuring of the FE sector, and makes it abundantly clear that no further EFS (Exceptional Funding Support) will be available to colleges post implementation of the Area Review recommendations.

“Basically, colleges have one shot at it.  The other point to note is that this is not a ‘fund’, rather a lending facility ie repayment is generally expected on commercial terms, with interest, supported by security. As with traditional lenders, applications will be subject to a stringent approval process, hence the importance of a credible and robust plan, which is where our experience can be invaluable.  Management teams must recognise that not only is it critical to have clarity around the numbers, but it is also imperative that stakeholders are satisfied there is an appropriate skill set within the management team to actually deliver the transformation.  In our experience, this is an area where many colleges would benefit from help.  The nature and mix of skills must evolve and adapt in line with the structure of institutions changing, and as funding is reallocated.  Frequently management teams are facing this type of challenge for the first time.  Merging and integrating institutions, as with businesses more generally, requires specialist skills and experience, that do not naturally form of the “day job”.  Management teams should look to engage with us early in the process, and leverage our expertise in helping them manage successfully through the change process; specifically, timely help with applications to the new Facility is fundamental.” advises Jo.

Doing nothing is a recipe for disaster, as is clear from the one off nature of the Facility and also the fact that an insolvency process is currently being drafted to deal with failing colleges. The draft consultation states that the insolvency regime is being designed in a way which will:

• protect learners from disruption to their courses
• help the rehabilitation of a college, where possible
• provide an orderly wind-up procedure if a college becomes insolvent

The crowdfunding market continues to gather pace, and the recent exit for crowd investors with the sale of E-Car Club giving investors a three times return has done nothing to dampen enthusiasm for this fast moving funding solution.

Although often met with skepticism and criticism in some investor circles about it’s ability to provide sufficient returns to investors through an exit, the E-Car Club exit is a fantastic example of the old and new funding worlds colliding, to facilitate an exit and healthy return to investors.  In summary, the business initially raised funds through a technology board which secured seed capital for it through Crowdcube, followed by angel investors, before ultimately finding an institutional investor.

Often there is a deep misunderstanding about the types of businesses that raise funds via the crowd.  Far from being unsophisticated businesses for unsophisticated investors, they are becoming increasingly established, led by credible and experienced business teams.

The market is still developing, and here at De Novo Advisory we and our clients are increasingly getting involved in this area.  As with all developing areas, there is always an element of caution, but our experience to date and view of the market going forwards, is that it’s an area not to be dismissed lightly.

The FE sector is undergoing its own learning curve. There is so much happening in the sector at the moment, which is producing both challenges and opportunities. There will be winners and losers over the months and years to come!

First the challenges – too many to cover off in detail here, but watch our website for more news coming soon. In summary, there have been huge funding cuts over recent years and FE institutions are struggling with cutting their cloth accordingly.  This impacts inevitably into the supply chain, hence a number of related businesses are also creaking. As well as cuts, there are regulatory and structural changes, all adding to the burden of how to remain adequately funded both now and in the future. None of these are easy for management teams to address, particularly when historically this area has not been a huge part of the day job.  There is however no escape and teams are having to adapt and transform in order to survive.

What about the opportunities?  They will be plentiful for those organisations financially well positioned to exploit what’s coming.  Taking advantage of technological developments will be a big plus to those ahead of the curve. Location is also a key point – there are simply too many institutions often in close proximity, all doing very similar things in terms of what they offer.  The sector is ripe for consolidation and specialisation.  As with any sector, putting two bad businesses together doesn’t make a good one, and so there is much to be done both from a funding and management perspective to ensure such sweeping changes in the sector are managed in a way that not only gets the job done in the short term, but crucially that also secures the basis for long term success.  This requires engagement and facilitation across the wider stakeholder group throughout the transformation process.

These are key areas where De Novo Advisory can support and add value through challenging and opportunistic times.

With a new year comes renewed optimism.  But, it is also important to remain realistic about the immediate short term, as well as a business contemplating the latest 5 year plan.

Many are (still) faced with challenges associated with high borrowings, poor cash generation, under performance, or possibly are growth constrained due to an inappropriate funding structure.

There comes a point where real action is essential to address the issues and ultimately secure stability for the long term future.  In such scenarios, visibility on potential restructuring options as part of a wider turnaround plan, is beneficial for management and stakeholders.

With new year and new optimism in mind, do not forget there are at least as many dangers in a recovering economy as in a recession. Both businesses and financial stakeholders should remain vigilant during any recovery cycle to ensure they are not only well placed to benefit from an upturn, but importantly also retain flexibility to adapt quickly if there is a deteriorating situation.

Over the past few years, a number of law firms have found themselves in financial difficulties.  Some have been able to adapt; others have been less fortunate.  Failures, mergers, acquisitions and closures have all contributed to a changing market for firms operating in the legal profession, and 2014 is going to be no different.  January’s headlines have already highlighted a significant number of firms in the process of closure.  This is driven in part by the inability to secure professional indemnity insurance, but in reality there will be a number of underlying contributing factors.  Early engagement and advice is essential if this trend is to be stemmed.

Firms are facing many issues, and some are in a zombie like state, unsure how to move forwards. There is increased competition for dwindling business levels, making it a buyers market – clients are demanding more for less.

Some of the common issues include:

• Over leveraged
• Unable to provide lenders with adequate security
• Strained lender relationships
• Liquidity problems (cashflow is often very lumpy)
• Increasing difficulties raising periodic finance for vat, PI, partner tax etc
• Inadequate corporate governance
• Dominant partners
• HMRC arrears
• Aggresive drawings compared to profits
• Changes in legislation, and more stringent compliance demands
• Fear of intervention if take advice, and
• Poor management teams and lack of financial information and controls.

In addition, tough times have been compounded further, due to recent legislative changes which have opened the market to Alternative Business Structures (ABS) increasing already fierce competition from new players such as the AA, who already have vast consumer bases and strong financial footings from which to sell their own legal services. As certain areas of law become increasingly commoditized, so the pressure will increase on firms that can’t deliver the economies of scale and efficiencies, formidable new entrants have to offer.

The over riding problem we see time and time again is that firms are simply not used to dealing with financial difficulties. They lack the expertise essential to survive tough periods, and as such often delay seeking advice, losing valuable time and often credibility. Often, financial management is not sufficient to enable the firm to see a looming cash crisis coming, putting them on the back foot when they urgently have to approach funders for additional support.

This in itself may not have been a huge problem in the past where there have been strong relationships, but the banking market has also had a tough ride, and they are now far more wary of such requests, with greater focus on security cover – not easy to provide for many firms, making these asks extremely difficult to accede to.

These situations are tough all round – in particular in partnerships without limited liability, the partners may face personal financial ruin if the business fails. The shock in itself of this can be a huge distraction and a further barrier to taking preventative action.

Solutions are not easy for legal practices for many reasons, for example, issues with retiring partners, successor practice rules, TUPE, mismatch in value expectations, funding restrictions etc.

However, solutions are possible, but early advice is essential to maximize future prospects for success. Solutions may include a combination of:

• A complete restructure (possible including a debt sale) and trade through
• Partial change in management team
• Mergers and acquisitions
• Venture capital / private equity backing
• Improving lender security
• Sale (possibly on an accelerated basis)

Further information is contained within our website under Professional Services. Please contact us if you would like to discuss an issue and how we can provide support.

Over the past 12 months, businesses have remained remarkably resilient, with relative few high profile company failures.  However, the growing issue of zombie companies is worrying, and as we move into 2014, could present a real problem for our economy.

A zombie company is one that is only able to pay interest on its debts, but is unable to reduce long term obligations – this is a concerning trend. They are unable to expand or invest and in effect just survive.  With interest rates so low, and bank forbearance generally high, there is greater ability to simply cling on.

Businesses like this that are running on empty, teetering on the edge of insolvency are unsustainable.  It only takes one issue, over which a company itself may have no control, to tip a zombie over the edge.  For example, a major contract may be lost or significantly delayed, or the company could suffer a  large bad debt.  Others can finally fail through sheer exhaustion of management teams, that eventually get tired of fighting battles and not making any real progress – to remain incentivized, it is important to see light at the end of the tunnel. Let’s not forget that behind the zombies are real people, with real lives and responsibilities to maintain – this is not just a theoretical problem.

Finally, although not expected in the immediate short term, the threat of higher interest rates concerns many businesses given they are already precariously balanced, and for many there is no contingency plan in place to address this future issue, exposing them to potentially dangerous territory.

De Novo Advisory has experience in helping revive businesses in a zombie like state, be it stakeholder negotiations, refinancing, contingency planning or an overall restructuring solution.  Please have a look at our capabilities to find out how we can help.

A Time to Pay (TTP) agreement with HMRC provides companies with valuable breathing space at a time when they are experiencing cash flow pressures. Businesses looking to secure a TTP must ensure they are aware of the necessary requirements and how it can impact the business.
Firstly, what can a TTP achieve? In overall terms it helps give a breathing space while a business addresses cashflow issues, generally as part of a wider plan to get the business back on a stable footing.

When are they requested? Generally in the face of often quite extreme financial pressures, of which the causes may be many and complex.

Why is help beneficial in seeking a TTP request? Principally, at times of increasing pressure, management time is extremely valuable – dealing with a credible TTP application is yet another burden on management time and resource. Not only can De Novo Advisory assist by freeing up this precious time, we can also provide workable solutions to address underlying issues in the business, leaving key people to focus on keeping the business running as smoothly as possible.

What might these solutions be? Often, TTP is only part of the solution, and some element of our other Services runs in parallel with the TTP, to ensure solutions beyond the immediate short term are also covered.

These may include support around cash management, for example help with forecasting and the “real” cash requirement, stakeholder management, for example leveraging our experience of working with HMRC, funders, finance companies, and other stakeholders, as well as supporting operational improvements to drive cash and profitability in a way that complements existing resource rather than duplicating. Finally, refinancing may be appropriate, and here we can recommend the suitability of alternative sources and structures, as well as making the appropriate introductions.

Common concerns for businesses ahead of an applications include:

What must HMRC be satisfied of in agreeing to a proposal? 3 key elements are that they believe the debt really can’t be paid on the due date, you really are putting best possible proposal forwards and most importantly they are convinced that you not only have ability to meet the proposal, but also that you remain up to date with new obligations falling due.

Length of time available? In most cases 12 months is the absolute maximum, but as far as HMRC are concerned the shorter the better.

Track Record Issues? This is important but as long as there is honest disclosure and a credible proposal, a few missed payments in the past will not automatically count against the application. HMRC don’t like repeat business. Depending on circumstances, renegotiation is possible but a carefully presented application will be fundamental.

Working with De Novo Advisory in making a TTP proposal to HMRC will ensure you are in good hands. Our experience dealing with HMRC and situations of financial stress ensure swift and effective action. We can provide clarity on exactly what is required, draft the application, robustly challenge the supporting cash forecasts, and be the key contact point with HMRC.