Returning a distressed business to profit - A subscriber’s story

Recently we met with entrepreneur Mark Levey to talk through his fascinating experience of turning a troubled businesses around. He also shared with us how he uses the Business Sale Report to spot new opportunities for himself and others.

Levey’s story offers a useful insight into how a business can be taken from the brink of failure to a profit-making enterprise by cutting costs, reviewing the business model and employing the right people. Levey advises those embarking on such a project to employ the best people and pay them a competitive rate. According to Levey, “Staff is the most critical aspect of a business turnaround."

After 20 years working for a chartered accountant, Levey began to advise his clients on how to look after and grow their businesses. In April 2010 an opportunity arose to invest in a football brand business and Levey jumped at the chance. At the time of investing, the business was making a loss of £1.2 million year but he was confident that there was a viable operation there and that he could return it to profit.

“In the space of two years the business went from making losses of £1.2 million to profits of £400k,” he explained. Growth has also been impressive, with the firm moving into a number of new markets. It now trades in 54 countries and sales are just as healthy overseas as they are in the UK.

So how did he go about turning the business’s fortunes around? “It was quite simple,” claims Levey. “Spending was the major problem – particularly on the part of the owner/manager. This had to be brought under control - he was driving an £80,000 car.”

After spending was contained, including making a number of redundancies, Levey got to work in altering the business model. The firm used to design, manufacture and store products to sell to retailers. Levey saw the opportunity to add new markets and reduce overheads by specialising in selling brand licenses to distributors.

“We didn’t have to fund any of the purchases or storage of the products. As a result it meant that we only had 50 customers to collect income from, rather than 550 customers,” he explained.

Cash flow was guaranteed thanks to the addition of a clause in the licensing agreement that prevented factories releasing products to distributors unless they had paid up. Meanwhile, a five-year deal with a major online retailer guaranteed income for this period, allowing the business to reschedule debts with banks and HMRC.

Levey is now a minority shareholder in the successful business and has taken a step back from its day-to-day running. He is on the look-out for new opportunities to buy a distressed business and sees the Business Sale Report as a reliable source of information.

“We are looking for timber businesses and sports brands located anywhere in the UK. We are also looking for refrigeration businesses to tidy up and pass on to an old client of ours. We would consider businesses in administration, liquidations or winding-up petitions,” explained Levey.

He’s developed such a reputation for spotting a great business opportunity that several of his acquaintances in London have commissioned him to buy distressed businesses on their behalf.

His advice to those considering buying a troubled business? Keep a close eye out for businesses experiencing financial difficulties, such as those that have had winding-up petitions issued against them, as early monetary pressure is very often a precursor to a firm entering administration, and getting in early will provide some of the best opportunities for buyers.

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