Company Profile
Privately-held industrial products manufacturer approximately $85M in sales
Problem
We worked with the Client’s purchasing and inventory control personnel to determine the need for a new perpetual inventory system. We also worked with Client’s CEO, sales and production departments and utilized external research data to determine realistic assumptions and prepare a five year P&L, Balance sheet, and Cash Flow forecasts.
Action
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 ensure 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.
Results
Within a few days, we determined the Client actually had adequate inventory procedures in place, but was not reporting them correctly. Thus, unless the Client planned to upgrade basic manufacturing and financial systems, there was no need to spend an estimated $300K on new inventory and financial system upgrades. The financial models that we prepared and presented to the Client’s commercial bankers resulted in a more than doubling of their credit facilities, from $10M to $25M.
Additionally, we determined that the Client had serious A/R aging issues with DSOs approaching 90 days. Senior management had been told they were closer to 45 days. It was determined that a more qualified CFO was needed if the company was to reach its objectives. Interlochen was responsible for sourcing, screening, and recruiting candidates, as well as assisting with negotiations.