The Challenge
All too often, franchised restaurants slide by with sub-par accounting practices. This can go unnoticed for years in a strong market. When the market begins to shrink and margins tighten, however, the lack of financial padding reveals the true state of affairs. Unanticipated expenses or missed accounting deadlines can quickly lead to catastrophe, which is what one Taco Bell franchisee was experiencing before turning to GSS for help.
The 70-store franchise was strapped with a $40M senior debt, and cash was running very tight in the seasonal months.
The outsourced accounting firm at the time was not competent to handle the accounting tasks, which inevitably began to slip.
The company’s CFO was feeling out of the loop as communication was lacking from the accounting firm, and poor financial tracking was silently eroding at the foundation of the business. Then, the outsourced firm missed the deadlines for the debt ratios reporting and the annual audit, pushing the senior debt into a technical default. As things began to spiral from bad to worse, the CFO was overwhelmed.
Yet just when it seemed things could not become bleaker, severe weather struck in late 2017, causing structural damage to multiple restaurants, and shutting down some locations for a week (causing an additional $750,000 in lost revenue.)
Now the company did not even have the funds for payroll.
The Solution
Global Shared Services (GSS) has the experience, technology, and expert staff to give restaurant operators peace of mind knowing that their industryspecific General Accounting, Billing, Accounts Receivable, and Accounts Payable bookkeeping is in order. The detailed knowledge base and honed processes allow GSS to also help in situations involving late deadlines and even financial crisis.
Thanks to a timely referral to Global Shared Services, the CEO reached out to GSS for help. The prior accounting firm’s mismanagement required fast action to keep the business from hitting bottom. Even still, a recovery plan at this stage would take 4-6 months if all went well. GSS was up to the task.
GSS’ expert team reacted quickly, producing a rolling 13-week cash flow forecast and secured short term funding from a major supplier to meet critical obligations such as payroll. Next, GSS worked with suppliers to stretch credit terms, opened negotiations with the company’s senior lender to restructure their credit agreement, and secured a bridge loan from an equity investor to backstop the credit agreement. Finally, with the new credit agreement approved, GSS got signed off on the delinquent year’s external audit and provided the bank with the required reporting to meet covenants.
The Result
By mid-2018, GSS had brought the Taco Bell franchisee back into financial compliance, and the business was again generating cash flow. GSS continued to provide targeted CFO services to the franchisee, and by mid-2019, new financing was secured to refinance the franchisee’s debt and provide a cash distribution to its equity investors. The 2018 external audit of the business was completed weeks before the deadline, which ended the heavy monitoring requirements from the bank.
The franchisee’s leadership is able to focus on what they do best – managing a multi-store enterprise – and is well aware of the financial state of the business through GSS’s stellar communication and technology. With a glance at a smartphone, the CEO can see the weekly cash reports and be reassured there is funding for upcoming payroll and debt payments.
