Private equity owned manufacturer of automotive parts with revenues once exceeding $120 million
Revenue appeared to stabilize after a 30% decline. However, the equity sponsor and lender were dissatisfied with quality and timing of reporting. Cash flow issues existed despite significant cost reductions and the slow pay to vendors caused supply chain problems. Low morale and political divisions exist throughout Company due to financial distress.
The Interlochen CFO immediately addressed timing and quality of reporting by instituting a firm closing schedule and removing impediments to timelines, such as streamlining requirements and eliminating non-productive reporting activities. A parallel closing process was implemented to insure accuracy of reporting. The budgeting process was revamped in order to significantly reduce preparation time and a monthly rolling forecast was developed to project operating results and bank covenant compliance.
Interlochen also developed short term and long term cash forecasts which highlighted opportunities in working capital reduction. We worked closely with plant controllers to develop buying and inventory utilization plans which would liquidate inventories in an orderly manner with little impact on profitability. We then presented the inventory / cash plan to bank and to private equity group to obtain funding to bridge the “gap” between inventory liquidation and cash collection. We monitored the plan and cash weekly to insure adherence to plan.
Lastly, we addressed morale issues by sharing the plan with every level of the Company. This focused management on the solution rather than the problem. We reported successes as they occurred, giving credit to people at the operating level who made them happen.
Month end reports were issued on time and accurately, restoring the confidence of the private equity owners and the bank. The budget was presented and approved prior to year end for first time ever. The rolling forecast brought about conversations with bank in advance of issues and the Company’s credibility grew as the forecast unfolded.
Through our efforts, the Company reduced inventory by nearly 50% with no interruption in operations and no significant impact on profitability. As cash became available, they repaid the bridge loan to bank, reducing the existing line, and caught up with past due vendors.
Morale improved dramatically as key managers took credit for incremental successes and as vendor pressure eased. At the end of the project, the tools to manage cash and working capital remained in place and were being utilized at every level of the Company. With renewed confidence in the Company, the private equity group began plans to invest additional capital.