Client Case Example #4
Profile
Privately held, second generation, value-added distribution business generating $5M in revenue and an annual net loss of $300K.
Situation
The business had literally burned to the ground. Customers, vendors and employees remained uncharacteristically loyal through a three year rebuilding process. To the extent that insurance proceeds had fallen short of full recovery, the business leveraged vendor relationships and payment terms to fuel working capital needs. Vendors were applying significant pressure. Cash flow was extremely tight. The sales force was entrenched in survival mode and were not at all confident in quoting new business due to the inability to purchase inventory. Customers were growing increasingly restless as a result of delivery dates being missed consistently. Employee morale was suffering tremendously.
Actions Taken
The management and sales teams were interviewed and assessed. A three year strategic and financial forecast was prepared detailing the potential of the business and refreshing the senior management team. We worked with the existing bank to refinance the property, institute a working capital line of credit secured by business assets (primarily accounts receivable and inventory) and initiate a pre-approved equipment purchase line of credit. The available cash was used to bring the accounts payable current and purchase the inventory needed to satisfy outstanding customer orders. Fundamentals were applied to the cash and treasury management area of the business. Overdue changes were made to the management team to improve morale and improve the level of competency. Investments were made in new catalogs and an updated website. The sales team was taken through an intense three month sales training program designed to focus their attention on new sales leads. Customer services and internal sales resources were improved to support the sales initiative. A three-year strategic plan was prepared by the new management team, including a performance based incentive compensation plan for all 36 employees. Performance measurements and metrics were established to track & measure progress toward strategic and financial goals.
Results
The business has not been on hold with a vendor in over a year. Customers are satisfied with product supply & delivery. The sales force is re-energized to pursue new, incremental business. Cash has been sufficient to pay off the working capital line of credit. The business has grown 50% in revenue and generates 9% in EBITDA. Two years into our involvement, the business paid employees over $50K in bonuses. The sales force is comfortable with growth goals of 12% per year for the next three years. The bank is very satisfied that their client is now solvent. The management team has a set of performance measurements to track progress toward goals and bonus compensation. Employee morale has improved dramatically. Within two years, the business will have sufficient value to provide a very comfortable retirement for the 55-year-old, second-generation owner.