Objective Marketing

Financial Restructuring - A Petrol Station Case Study

January 14th, 2007

We had initial contact from the owner of a petrol station concerned about the problems she was having with her bank and overdraft facility. Her account was constantly in excess of its limit, with the result that her cheques were being returned.

After a discussion with her bank manager, it became clear that the financial position was unclear and the property valuation was not up to date. We quickly resolved those issues and then renegotiated her bank facility. Though she had to pay for a new valuation, this proved money well spent.

The entire finance was restructured onto a loan with an agreement that the interest rate would be reviewed after 12 months. Essentially, the existing commercial mortgage and overdraft facility were converted to a new mortgage over a longer term. This released cash back into the business and reduced the monthly repayments. As this was a restructure of the business finance, an agreement was reached that the interest rate would be reviewed if the trading was better, and if the bank account remained in credit then the interest rate would be reduced.

However, the underlying problem was the lack of management control. The lady in question spent very little time at the site and relied on various staff to maintain the controls. In addition she was living beyond her means, both from a personal financial position and a business financial position, and this we proved to her by the completion of a business plan based on the actual sales of the business, and realistic targets for ongoing sales.

The problem was that she did not generate sufficient cash from the business to meet her liabilities including her own drawings.

She felt she had 2 options:

A: Sell the property and business
B: Continue and hope that things would improve.

Clearly, the second option would not work without some radical changes which she could not implement. The first option would not have provided sufficient cash for her to continue to live at her required standard for very long, and her skills would not allow her to obtain employment to provide a sufficient level of income.

As a workaround we brokered a third option with another petrol station owner we knew that operates many sites across Southern England and needed a better base for his operations.

This new operator has now taken on the management of the business. He also continues to run his other sites from this new site as it has an office. He has made the changes necessary, mainly in staff working patterns and control of deliveries. The site is now profitable!

The deal involved the new tenant paying above market rate for the rent. This provided sufficient income to the owner to maintain her lifestyle. The new tenant will however receive 50% of the proceeds of the sale of the business, above an agreed figure when sold. He is taking a gamble that the business and property value will increase substantially, but felt that we could grow the business substantially, which of course, was in his long term interest as well.

The current owner has her existing equity protected, she will receive 50% of any increase above that and her income is maintained. It is in the interest of both parties to maintain the business and premises at a high standard to improve the potential sale price.

We also completed new wills for both owner and tenant as they now have assets to protect. Insurance policies are in place to repay the finance if necessary.

Summary.

Good lateral thinking has resulted in an arrangement that rewards both parties, meets both of their ambitions and ensures that good business practices are employed.

The end result is 3 happy people: the owner, the tenant and us.

We offer this type of service to all our clients. Financial restructuring could be a very positive step forward for your business.

Call our financial expert, Cliff Foster on 07944 866382 or e-mail us to discuss your requirments.

Entry Filed under: Marketing