A report into the collapse of Merchant Inns, the mid-market pubs-and-inns business, shows that only half of its six venues were profitable at site level.
It also speaks of a head office vastly out of kilter with its operations and refers to several "unexplained items" on the group's balance sheet.
The business review, which was carried out by Baker Tilly and dubbed "Project Venice", says the group was reliant on three units — The Talbot, The Lambert and The Carnarvon — for "generating most of its revenue and almost its entire ebitda, with the remaining units being marginal to break even, and not contributing significantly to group overheads".
The professional services firm, in a piece of work carried out for Merchant's banks, said its central costs were out of proportion with its estate. It said the sales and marketing function was sufficient for a further 30 units to be added to the group.
The report said the group had been trading while technically insolvent, with liabilities of £31.3m against assets of £26m.
The group, which was set up by Robert Breare and Sir John Ritblat, owes £1.4m to creditors.
Baker Tilly also said that the group had been hit by general manager issues — highlighted by the fact that one site had five GMs in two years - senior management issues and long periods of lost trading due to extensive refurbishments plus general market volatility.
It recommends the immediate appointment of a finance director followed by a thorough review of the business — particularly the "overstaffed" central support functions — and calls for greater cash discipline and more rigorous forecasting.
Baker Tilly also says it cannot support a plan to redevelop the Saracens Head. It suggests that the site does not fit with the rest of the group and intimates it should be jettisoned.
It said: "The group needs to build a more profitable and cash generative portfolio before any further significant capital expenditure can be recommended."
The banks behind the group are thought to be close to appointing an established operating company to run the business, in a process handled by CBRE.