Overcoming Financial Challenges: A Real-Life Case of Business Turnaround
In the business world, unforeseen challenges are inevitable. Whether it’s a bad contract, unrecoverable debt, or a significant industry shift, no business is immune to financial difficulties. Fortunately, solutions are often within reach. Our commercial team at Jean Fortin & Associés presents a concrete example of a financially struggling business that underwent a successful financial turnaround.
Recognizing Financial Distress: The Tremblay Family’s Golf Club Dilemma
Meet the Tremblay** family, who had been running a golf club for years. Initially thriving, their business generated enough revenue to cover the mortgage on the property, the clubhouse, and most of their suppliers. However, a gradual decline in customer traffic, coupled with a significant drop in corporate tournaments over the past 4 years, posed an important challenge. Despite offering a full-service restaurant, the Club ended the year with zero cash and no receivables to collect. Pierre Fortin, President of Jean Fortin & Associés, notes that at this point, “the Tremblay family business showed signs of financial distress that needed solutions.”
Options for a Financially Struggling Business
As the new season approached, the Tremblay family sought an additional loan from their bank as working capital. Unfortunately, the bank rejected the financing request after analyzing the financial statements. Despite meeting mortgage payments, the business had been operating at a loss for 4 years. To cope, suppliers were partially paid in the current year and the outstanding balance transferred into the next season. This lead to an accumulation of overdue accounts for $500,000. Facing limited options, the bank’s director presented 3 solutions: selling the business, injection of funds from shareholders, or meeting with a licensed insolvency trustee. Unable to reinvest and viewing the Club as their life’s work and sole pension fund, the family was unwilling to sell.
Solutions Proposed by a Licensed Insolvency Trustee
The Tremblay family promptly scheduled a meeting with one of our business recovery professionals to explore alternatives beyond the bank’s suggestions. After analyzing the financial statements, the Club’s current operation and a good conversation with the family, our team proposed this recovery plan:
- Loan Restructuring: A request to the bank was made to extend the loan term from 15 to 25 years, easing the annual cash flow pressure by $52,000/year.
- Restaurant Concession: The restaurant was concessioned out. Past results and future financial projections showed that this operation turned the family business from a $45,000 loss to a $25,000 profit annually.
- Sale of Golf Carts: Golf carts were sold, and the proceeds injected into working capital. Leasing carts would be the way to go for the next season.
- Creditor Proposal: The suppliers and other creditors ($500,000) were proposed a lump-sum payment of $100,000 to be paid after approval by creditors. The funds would be paid by a cousin who wanted to become a shareholder.
Outcome of the Turnaround Solution
The proposal and its action plan were promptly presented to creditors. Seeing the potential for the club’s viability and the possibility for suppliers to maintain their business with a long-time client in future years, the proposal was accepted by the required majority of creditors. With this dramatic reduction of debt and the cash generated from cart sales, the Club could cover the start-of-season expenses. Enhanced cash flow flexibility, thanks to the new bank conditions and restaurant concession, meant the business would no longer face a liquidity crisis if customer traffic temporarily decreased. “In the long run, the Tremblay family golf club regained profitability through our business recovery team’s intervention,” Pierre Fortin proudly shares.
**Names have been changed to preserve anonymity.
Financial Health Checkup
The perfect tool to get a quick picture of your financial situation.
Solutions for companies
We assist business owners in finding the best solutions with regards to their company’s financial situation
What is a debt ratio?
Discover how banks determine if you are able to repay a loan that you would like to obtain.