[Case Study 1: Retail] Two Years After Succession—How a Company Chasing Debt Repayments Reclaimed 'Profitable Procurement'

*This article is a reconstruction based on multiple case studies and does not guarantee individual results.

'Staring at the bank balance at the end of the month,' 'No one speaks up in executive meetings,' 'The cold stares of veteran employees when trying to change the predecessor's methods'—the knowledge learned in management seminars and books is completely useless in the field. How did a successor who tasted such despair change the company in one year?
President A's company, introduced here, also had a severe debt repayment period and tight cash flow, with a stagnant organization at the time of succession. However, after more than two years of working together, those figures improved significantly, and the atmosphere among employees changed dramatically.

Background
President A succeeded a long-established retail business. Immediately after taking over the business, he faced the following challenges:

• Large amounts of debt resulting from the predecessor's typical P/L-focused and sales-first philosophy, which ignored the B/S(The debt repayment period [Debt Balance ÷ (Net Income After Tax + Depreciation)] had reached a dangerous level)

• Because management was conducted without regard for the B/S, the balance between investment and borrowing was broken, and the burden of interest and principal repayment was heavy, leading to tight cash flow despite being profitable

• The distance from veteran employees who had known the successor since childhood

• Unfamiliarity with business operations, as the successor had worked at a major consulting firm before taking over

The initial trigger for consulting me was the anxiety of 'not knowing where to start, but knowing that if I don't do something about the debt, things will be difficult in the future.'

The First Six Months—'Visualization' and Building a Meeting Structure
At the start of the support, we focused first on articulating the successor's own management philosophy, organizing the current situation (especially taking stock of past strengths), and designing management meetings.

• Understanding the cash flow structure through numbers

• Designing a meeting structure where management can grasp the field through numbers and execute PDCA

• Shifting the focus from sales-first to increasing marginal profit (Sales - Variable Costs)

• Understanding the importance of reducing unnecessary fixed costs and improving the profit structure

This clarified the 'overall picture of management' and the 'priority issues.'
In the next step, we introduced a small experimental project. We launched a new service related to the existing business on a trial basis and appointed a young employee of the same age as the president as the person in charge.

One Year Later—Confidence and a Positive Atmosphere Emerge
Six months after the initiative began, visible changes emerged in the company.

• Reduced anxiety about cash flow through the visualization of cash flow

• Visualizing the 'mechanism for generating profit' by performing fixed-variable decomposition and introducing management accounting suited to the company
  → Problems such as 'businesses thought to be profitable were actually generating almost no profit' were brought to light

• Veteran employees became cooperative with the new project, and the workplace atmosphere became positive
  → It became clear that veteran executives found it difficult to handle things like thinking with numbers on their own, as they were not accustomed to it. Therefore, by advancing the project in combination with young people in the field who could flexibly handle IT technology, it became possible to 'make stable progress.' In addition, by setting up a monthly session with a practical management advisor, we were able to resolve questions in the field while moving forward.

• The president himself realized, 'I have become confident in my decision-making.'

• By analyzing POS data at retail stores that no one had paid attention to before, we systematized processes so that anyone could manage 'what is selling?' and 'when should we restock?'. This allowed sales, which had previously been based on 'intuition, experience, and guts,' to be conducted using logic.

However, not everything went smoothly. Initially, we were in such a rush to introduce management accounting that we faced backlash from the predecessor and senior executives, who asked, 'Are you rejecting the way we've done things until now?' To address this, we first achieved results through a small-scale project with younger staff and shared the realization that 'looking at the numbers, it is certainly improving,' which gradually gained their understanding.
There were other challenges, such as the predecessor nearly canceling the sale of shares to the successor, saying, 'If you won't live with me, I won't sell you the shares,' and some senior employees pressuring the predecessor by saying, 'President A is no good, so if you don't make senior executive B the president, we will all quit.'

President A says the following:
'Until now, I thought I was the only one struggling, but by having someone walk alongside me, my perspective has been organized, and the employees have gradually changed as well. I realize that small steps move the entire company. Recently, when a problem arises, I look forward to our bi-weekly discussions while thinking, "How would Mr. Kumagai think about this?"'

Two Years Later: Improvement in Numbers and Changes on the Front Lines
Two years after we began working together, improvements have progressed, involving not only the management but also senior executives and frontline employees.

• Results of efforts to improve the debt repayment period
  -> Increased 'net income after tax' through improvements focused on marginal profit and fixed cost reduction.
  -> Furthermore, by thoroughly compressing unnecessary inventory, shortening the collection period for trade receivables, and lengthening the payment period for trade payables, we worked on improving working capital, which led to steady repayment of debt. As a result, the repayment of debt began to proceed smoothly.

• Development of business flowcharts and manuals
  -> The fact that there were hundreds of tasks on the front lines was visualized, to the point where even the division manager was surprised, saying, 'It was great to grasp the big picture.'
  -> Frontline supervisors began to show motivation, happy that 'the president is watching over us.'

• Creation of a skill map
  -> Employees understood 'which skills they should develop,' clarifying the direction for human resource development.
  -> Tasks that could only be performed by one person could now be shared among multiple people, making it possible to take paid leave and carry out planned personnel transfers.

One frontline employee told me this:
'Previously, I felt that even if I made an effort, it wasn't being evaluated, so frustration built up and some people quit. But now, the president is interested in the front lines and talks to us, so I feel very fulfilled.'
Furthermore, a happy phenomenon has occurred where several young employees who had left have returned as executives, saying, 'If it's under the new president, I'll come back.'

Summary
Management after succession faces 'frontline walls' that cannot be solved by knowledge and skills alone. Like President A in this case, significantly improving the debt repayment period and changing the atmosphere on the front lines is by no means a story limited to special companies.
What is important is to enter the front lines and 'walk alongside' them in dialogue and system building. That first step becomes the trigger that moves the entire company.
Of course, the successor's efforts do not end here. To realize the successor's vision, we are continuing to carry out 'more advanced improvements' and 'launching new businesses,' and we are still providing practical, hands-on support that involves the front lines.

*The case study has been partially processed, such as by combining multiple cases. It is not related to any actual company or person. Also, the results are just one example and do not guarantee similar results for all companies. Depending on the consultation content, we may introduce experts from public institutions or other professionals.

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□ Have never calculated the debt repayment period
□ Do not perform fixed/variable cost decomposition and manage marginal profit
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□ Business flows are person-dependent
□ No cash flow statement
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Author Profile
Atsushi Kumagai
Practical Management Advisor / SME Management Consultant

Conducts over 400 management consultations annually, providing hands-on support primarily for successors within 3 years of succession. Creates results in diverse settings, including IPO support at a VC and improvement support for companies with annual sales of 10 billion yen.