A RELEVANT CASE STUDY

Back from the brink.  How an established SME film studio business moved from significant annual losses to approx. £500k per annum Pre Tax Net profit, in four years, and doing so by planning  strategically, rather than just tactically, and by then implementing rigorously the agreed and desperately-needed change plans

The OMSG Group Non Exec who worked on this case is Peter Gray, who is Joint Managing Partner of our practice, and who is also a Full Member of the of the Institute of Business Consulting (MIBC) –

“Is it possible to take a loss making SME business that is dependent on a vulnerable overdraft facility for working capital - and make it generate surplus cash?

It may be - but it usually takes a fresh strategic vision - and sometimes that is difficult to find when you are the owner of an established business that requires all your attention and energy to keep it working  

We believe that potential clients such as yourselves value enormously an objective and most particularly strategic, appraisal of your business, and then help from us over say a three to four year period to set it (with you) on to a new path towards serious long term net profitability, net cash generation and shareholder value.  Here’s how an SME film studio business achieved a complete turnaround in four years”

The background - A long established, and at one time very successful and profitable, film studio had in more recent times failed to react to a changing business environment and had continued to bask in former glories, with the result that it was suffering from serious cash flow and profitability issues. Indeed, substantial losses had been incurred in the last trading period of £285K on a turnover of only approximately £800K

The preceding shareholding owners, a large property and facilities organisation within the Industry, had acquired the business some two years previously but had failed to arrest the decline, and total closure of the studios was a very real likelihood. The studios comprised sound studios, workshops, offices, wardrobe etc…, indeed everything required for a production company to locate to whilst in film or television production, including bar and restaurants. Furthermore, all utilities were provided, such as heating oil, electricity and telephones

The problem - The Board had continued to trade aimlessly without any short or long term plan to address the key issues of an ageing infrastructure, tired facilities, increased competition, and most importantly a very real funding shift in the core market of television production. The company had made no moves to reduce staff levels to reflect the decline in trade, and the sales that were being secured were heavily discounted, and after which the debtor collection protocols were plain woeful. By the time that the OMSG Non Exec Group were asked to assist, the concern was very close to closure

The initial analysis - The appointed OMSG Group Non Exec was soon able to grasp the situation, and to implement with the client company a strategic review of the totality of the business model

A number of key decisions were made –

• Rather than trying to compete directly with the large studios, it was decided to target a niche sector, in this case, music rehearsal

• Emphasise and promote most particularly the enhanced customer service, flexibility and adaptability which a specifically smaller-sized operation can offer

• Create a new rate card, and with very limited and controlled discounting, and with charging out of utilities at a significant premium

• Put into place some serious marketing and promotional activity – for the first time !

• Terms of trade to be payment in advance of entry, with subsequent invoices payable in  seven days - realistically this led to settlement within 30 days

The key to all of this was that the music industry, unlike other media formats did not expect or seek discounts, and paid normally for its required services much more quickly. At the time, the competitor studios were not welcoming to music artists, and it soon became known that this particular studio was very much the place for them to go. Moreover, the ageing stages on the site were not fully sound-proofed which often caused problems when film production companies were shooting with sound, ie not an issue with music rehearsal

The initial outcome - Within six months the studios were once again a vibrant enterprise. Twelve month figures showed a small profit on a turnover of £700k

The second stage outcome - The areas of marketing, client services, and staffing levels were tackled as a second phase, with turnover more than trebling over the next two years, and with no bank borrowing, the business went from strength to strength, making substantial profits for the current owners

The result - The business achieved its prize: hugely improved net profitability, massive net cash generation, a delicious balance sheet and an amazing increase in shareholder value - ie for the owner, the realistic prospect of a cash sum worth between £2.5m and £5.0m based on the massively-enhanced trade sale value

All concerned were agreed that the on-going support of the Non Exec over the four year period had been absolutely key to the successful implementation - and which in this instance delivered to the owner a Return on Investment in our services of approx. 37 times !

Peter says - “The key to unlocking performance is to see past the peripheral day to day and tactical issues, and identify the true reasons behind flagging / non-existent net profitability. Once I had safety-checked the proposed strategy changes with them, the management team found renewed courage and a belief that their radical plan of action would actually work“

Are you interested to know how an OMSG Group Non Exec could help your business achieve similar and vastly better net profitability, particularly via strategic change  ?

At the OMSG Non Exec Group, our team of eight SME specialist Non Execs has accumulated over 300 years of business experience

We will appoint for you a qualified and highly experienced member of our Group to work individually with your company to deliver an absolute minimum of 300 per cent return on your investment in us and in our time and expertise - Guaranteed

Contact us now on 01235 850790 / 07891 332000 - or via wendy.murton@omsg.org.uk to arrange an initial discussion and review - It won’t cost you anything to talk to an expert

More next month, on another key topic of interest for SME business owners, directors and senior managers 

February 2012

©OMSG Non Exec Group Ltd – 2012