Background: A Diverse Asset Base but a Strained Financial Position
The company operated eight residential caravan parks alongside a UK-wide scrap metal business. While the group held a significant £18m in assets, it also carried £16m of debt. Several assets – including 15 residential properties taken in part exchange for park home sales and a disused pub – were not generating income, putting further pressure on cash flow.
The Underlying Issues
The business faced a combination of operational and cultural challenges:
- Development costs for park sites were not under budgetary control.
- Residential properties taken in part exchange were routinely overvalued to secure sales.
- The leadership prioritised profit over cash, overlooking the urgency of the company’s financial position.
- Professional advice on asset valuations was often disregarded.
- Relationships with lenders were poor, and no forward-looking financial planning existed.
A key turning point came when the directors accepted that selling certain assets at a loss was not only acceptable but essential to generate cash and reduce debt.
How Headstar Stepped In
A Headstar Fractional CFO established a close working relationship with the directors to address the issues and deliver change:
- Produced financial forecasts for different scenarios, including one that highlighted potential insolvency.
- Categorised assets into three groups – develop, keep for income, or sell.
- Demonstrated the true profitability of each site to inform better decision-making.
- Persuaded directors to sell selected assets at a loss to generate immediate cash flow.
- Linked remuneration to asset sales rather than profits.
- Managed the asset sale process with professional advisers.
- Negotiated with lenders to agree a split of sale proceeds for debt repayment and reinvestment, improving the relationship and transparency.
The Impact
- Return to frontline banking – Lender confidence improved, and development capital became available for new sites.
- Improved decision-making – Clearer reporting allowed directors to assess investments on an evidence-based basis.
- Debt reduction – Over six years, lender debt fell from £16m to £2.5m – a total reduction of £13.5m.
- Ongoing strategic input – The Headstar Fractional CFO was retained to continue challenging and supporting the directors in their growth ambitions.
Reflections from the Headstar Fractional CFO
“Only when the directors realised it was perfectly acceptable, and indeed necessary, to sell assets at a loss, could we make any progress with cash generation and debt reduction.” – Headstar Fractional CFO
Find Out More
To learn how a Headstar Fractional CFO could help your business reduce debt, improve cash flow and deliver sustainable growth, visit our services page or get in touch with the Headstar team.
