Rapid growth can backfire if the right controls are not in place. Business XL talks to a company founder whose business has overcome administration and has asked for input as part of our Breakthrough Clinic.
Established by former firefighter Tony Evans in the mid-1990s, railway infrastructure and rail maintenance training business TES 2000 has been forced to negotiate a more difficult path than many to build itself into a business with an £11 million turnover.
Everything had begun well for the company. Forced to retire from the fire service due to a back injury in March 1992, Evans went to work for a rail maintenance company, a move which coincided with the privatisation of British Rail. Shortly afterwards he ‘became aware that the industry was ripe for a change’. Moreover, he realised that the sector was ‘decades behind other industries such as the auto one and it was clear that there were things we could easily plagiarise from elsewhere’.
Evans started TES (or Tony Evans Services as it was then called) with £80,000 and, running the business from home, managed to turn over around £750,000 in year one.
All continued to go as planned until the tax laws changed in 1997. These amendments altered the way in which sub-contractors and employees had to be paid.
‘I wasn’t too confident in dealing with those issues at the time so I brought in a company to help manage the payroll and provide an office environment,’ explains Evans.
This was done in exchange for 50 per cent of the business. Around the same time, and admitting his own weakness at this point (‘I didn’t really understand factoring at that time’), Evans also decided to bring in a partner to help run the financial side, as he realised TES would soon require extra cash.
He approached his local Business Link and Chamber of Commerce for advice and recalls that ‘they put me in touch with a number of very useful people. Then I was introduced to a consultant who became the group managing director.’
By 1999, TES had reached a stage where it required further funding and, unimpressed by the direction in which the company was heading, Evans engineered a buy-out of the company’s main assets, creating TES 2000.
Forced into administration
Then the bombshell hit. As Evans now admits, ‘eventually it emerged that all of us [under the guidance of the managing director at the time] had been over-trading. We were being told that all was rosy but it was only later that we realised we had been spending the Government’s money.’
In August 2002, TES’ former managing director resigned and yet the implications of the company’s over-trading were far reaching, as Graham Eastabrook, who took over as managing director, explains. ‘It was only when we sat down to go through everything that we realised the problem was much bigger than we had first thought.’
Anticipating problems ahead, Evans had spent most of the early part of 2002 assembling a back-up team of directors, headed by affable lifetime railwayman Eastabrook. But while the company soldiered on for a time, matters came to a head several months later.
‘We secured three major contracts from Network Rail, but only two of these were signed and as a result of the shortfall the factoring company were reluctant to support us and squeezed the facility giving us no option but to go into administration,’ says Evans.
Rebuilding the business
Fortunately for TES, however, its reputation proved to be its saviour, as Evans outlines.
‘When we went to Network Rail we didn’t realise how well we were regarded and we were even allowed to tender for contracts whilst in administration.’
And getting the business back on track has not been without a certain degree
‘We came out of it in December and two days later signed the contract that put us there in the first place. We could have “phoenix-companied”, but we wanted to retain the name and come out with our honour intact,’ affirms Evans.
The way forward
Now liability free, TES appears once again well set for the future. A series of high-profile rail accidents have shifted the rail sector paradigm considerably in recent years, with Network Rail bringing much of track maintenance work in-house.
Yet against this backdrop TES has picked up project work and established itself as a first rate trainer of railway workers. It has pioneered an induction course, alongside Network Rail, which Evans believes ‘helps provide a benchmark for worker standards’.
‘I always had a dream of where I wanted to take the business, and though the creation of Network Rail has changed that slightly I still believe that we can get the company turnover to around £50 million each year,’ Evans concludes.
Breakthrough Clinic’s Advice
Peter Leach, head of BDO Stoy Hayward’s Growth Service, which helps entrepreneurial businesses grow and realise their potential, says:
In the US it is often said you never really make it as an entrepreneur until you have been forced to overcome adversity, and it speaks volumes for Tony Evans’ tenacity that he has managed to oversee such a strong turnaround in TES’ fortunes.
Evans faces up to his weaknesses
That said, what is particularly interesting about the company’s recent past is that its woes were borne less out of ego than pure bad fortune. After all, Evans has never been ashamed to admit his own weakness or to bring in the necessary assistance – a strength many small company founders actually lack.
Unfortunately for TES, while the decision to bring in a partner firm, to run the payroll and to introduce a more professional working environment aided expansion, the company had insufficient controls in place to prevent over-trading and it was this that eventually forced it into administration.
Learn from the past
Past problems considered, it is essential Evans and his team learn from their mistakes and build in the necessary systems and controls to prevent similar problems again. Strong management is key to any successful turnaround. Indeed the team Evans assembled throughout 2002 – as he began to suspect that the company had been over-trading under its previous managing director’s regime – actually saved TES from going under.
The wealth of industry-specific knowledge held by the new directors is central to the recovery.
Graham Eastabrook – who initially joined as a consultant track manager in February 2002 and later ascended to the position of managing director – previously headed Balfour Beatty’s track team and has worked in the sector for almost 30 years. Commercial director David Beechcroft (a chartered quantity surveyor), operations director Gary Desmond and technical director Phil Peachey boast more than 60 years rail industry experience between them too. Together they constitute a strong and highly experienced team to take TES forward.
Make the case compelling
One thing they must remember, however, is that in sectors such as this, the quality of service is all-important and it is therefore essential to gauge the opinions of your clients on a regular basis. Evans reckons TES is strong in terms of its customer relationship management (CRM), yet it is noticeable that there are, at present, no formal CRM structures in place.
Having senior managers go out and visit important clients on a regular basis to discuss their concerns and experiences is a must. Another relatively simple way of keeping customers on-side – and of building/retaining a competitive advantage – is to alter the way your contracts are arranged.
Earned value management (EVM)deals have been attracting a lot of attention in the US of late and could well suit TES’ business.
The guiding principle of EVM is that the service company involved is paid for delivery rather than the time and material expended. In essence, those operating EVM contracts are paid for completing work to the correct specification and within the designated time frame. Adopting such an approach could well see TES win a number of contracts hands down.
Exploiting new opportunities
Besides the esteem in which its maintenance services are held, TES’ other main strength is the quality of its training business.
Following the recent European Union expansion this too throws up some interesting possibilities as considerable effort is being made to bring business to these new member states.
The EU has earmarked a considerable amount of cash, which will be awarded – in grants – to those prepared to invest in these countries and should TES so wish, it could apply for a grant and use the cash to establish a training centre in a country like Poland.
This would represent a very cost-effective way of training skilled labour and would afford TES a brace of opportunities. Firstly, because of a dearth of skilled labour in the UK rail maintenance industry at present, TES could use this training centre to import workers and plug the skills gap. Once established, the company could also utilise the centre as a base through which it could pick up local contracts, opening up a bridge into new European markets.
Planning is the key
Regardless of what Evans and his team decide to focus on in the future, however, one thing is vital. To succeed long-term all companies require a well thought out business plan to ensure that everyone is pulling in the right direction. This is something TES must work on as soon as possible, particularly with Evans stating that he would like to see the company generating revenues of £50 million-plus in the near future.
The secret is to think about where you want the company to be in five years and then plan back to the present to realise how you will get there. Most people work the other way and miss out key steps as a result.
Once a plan has been drawn up – through which the company does not spread its interests too thinly – TES can start utilising its core strengths of providing training services and EVM deal structures to win additional contracts and stand out ahead of its peers.
Develop internal systems
Finally, it may be useful for TES to bring in an experienced non-executive director to help develop internal systems.
Evans is understandably concerned by the additional expense this may entail and yet bringing in a non-executive can be a very cheap source of advice as most have already made their money and are simply looking for a new challenge. For a couple of days a month you will probably have to pay them between £15,000 and £20,000 each year.