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Managing a declining business for cash

You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.

Case timer

00:00

Target length:

1. Read the prompt aloud

Read it slowly, then pause. Let the candidate ask questions before they structure.

A UK printed-directory business has revenue of GBP 50 million a year, falling about 10 percent a year as the whole industry moves online. Its fixed costs are GBP 20 million a year, and its variable costs are 40 percent of revenue. How long does it stay profitable, and what should the owner do?

Format note: Candidate-led: you choose what to model and propose the options; the interviewer challenges your conclusions.

2. Answers to clarifying questions

Give these answers only if the candidate asks. If they ask something not listed, give a sensible answer or say it does not matter here.

If asked: Is there any sign the decline will slow?
Answer: No, the whole industry has declined at a similar rate for years.
If asked: What does the owner want?
Answer: The most cash over the remaining life of the business.

3. The hypothesis a strong candidate states

Listen for an early, testable guess like this one. It does not need to match word for word.

This is an industry problem, not a company problem, so my hypothesis is that the right answer is to manage the decline for cash, not to promise growth.

4. A model structure

Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.

Profit path as revenue falls, and the options
- Profit now and next year
- Key: Break-even revenue and when it is reached
- Harvest by cutting fixed costs; consolidate; exit

5. The working, step by step

Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.

Step 1: Profit now
What a strong candidate does: Candidate: "I will model profit as revenue falls, starting from today." Revenue minus variable costs minus fixed costs, in GBP millions.
Profit now (GBP m): 50 - 50 × 0.4 - 20 = 10
Step 2: Profit next year
What a strong candidate does: Revenue falls 10 percent to 45; fixed costs stay at 20. Interviewer: "Why does profit fall so much faster than revenue?" Candidate: "Because the GBP 20 million of fixed cost does not shrink, so profit falls 30 percent while revenue falls 10 percent."
Profit next year (GBP m): 45 - 45 × 0.4 - 20 = 7
Step 3: Break-even revenue
What a strong candidate does: Fixed costs divided by (1 minus the 40 percent variable share).
Break-even revenue (GBP m): 20 ÷ (1 - 0.4) = 33.33
Step 4: Revenue in four years
What a strong candidate does: Four years of 10 percent decline takes revenue just below break-even. Interviewer: "The owner wants a digital relaunch to grow again." Candidate: "The whole industry is moving online, and rivals online are far ahead, so I would not bet the remaining cash on growth. I would rather make the decline pay."
Revenue in 4 years (GBP m): 50 × 0.9 × 0.9 × 0.9 × 0.9 = 32.81
Step 5: Harvest: cut fixed costs
What a strong candidate does: Candidate: "How much fixed cost could we remove?" Interviewer: "Fewer offices and outsourced printing could bring it to GBP 15 million." That lowers break-even revenue.
New break-even revenue (GBP m): 15 ÷ (1 - 0.4) = 25

The recommendation to listen for

At the end, say: "The CEO walks in. What is your recommendation?"

Manage the decline for cash rather than chase growth. First, at current costs, profit falls from GBP 10 million to GBP 7 million next year, because fixed costs do not shrink with revenue. Second, revenue drops below the break-even of about GBP 33 million in about four years. Third, cutting fixed costs as revenue falls, for example to GBP 15 million, lowers break-even revenue to GBP 25 million and adds years of profit. Stop new investment in print, consider buying a rival to share fixed costs, and plan an orderly sale or exit before losses begin.

Risks a strong answer names: The decline may speed up; Deep cuts may damage service to the remaining customers.

Next steps: Build a three-year plan to reduce fixed costs; Approach likely buyers or rivals about a combination.

Strong versus weak

A strong answer

Recognized an industry decline, modeled how fixed costs speed up the fall in profit, and chose harvest with a clear exit plan.

A weak answer

Proposed a new marketing campaign to grow printed directories against a declining industry.

Score the candidate

Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.

This case has no exhibit. Score Exhibit reading on how the candidate used the data you gave them: did they pick out the number that matters and say what it means?

Structuring

1: No clear structure, or a memorized framework that does not fit the problem.
3: A sensible structure, but with some overlap, a gap, or no clear priority.
5: A structure built for this problem, with no overlap and no gaps, a stated hypothesis, and a clear first step.

Math

1: Frequent errors, no units, or needed heavy help to finish.
3: Right answers but slow or messy working, or one error caught late.
5: Accurate and clearly narrated, with units, a sense check, and what the number means.

Exhibit reading

1: Read the chart aloud without finding the number that matters.
3: Found the key number but gave only part of the so-what.
5: Pulled the right number quickly and said what it means for the case.

Synthesis

1: Summarized what was done, with no clear answer.
3: Gave an answer, but with weak reasons or no next step.
5: Answer first, then two or three reasons with numbers, the main risk, and next steps.

Communication

1: Hard to follow: long silences, no signposting.
3: Clear most of the time, with some rambling.
5: Calm and concise, signposted each step, and checked in with the interviewer.

Total

0 out of 25

Score all five criteria to see the band and the feedback template.