Situation
A family-owned, 95 year-old, wholesale distribution business that provided the highest quality brand name supplies and equipment to institutional and industrial launderers and dry cleaners in the upper Midwest had experienced three years of declining revenues along with operating losses. The downward trend in financial results had caused the Company’s lender for over 20 years, to become concerned about the Company’s future ability to repay its $2.0 million asset-based line of credit which was fully collateralized by accounts receivable, inventory and cash surrender value of life insurance policies. As a result of the continued operating losses, the Company was also experiencing cash flow issues. Consequently, the bank indicated to the Company that it may not renew its credit facility unless the Company retained a turnaround management firm to address its deteriorating financial results. Turning Point was engaged to assess the Company’s financial performance and business operations, organization, prepare recommendations and a plan to drive a financial turnaround. Additionally, Turning Point was engaged to develop a cash forecasting process and re-establish the basis from which to renegotiate the current credit facility or seek a new lending partner. Turning Point was selected based on its in depth due diligence of the situation, the Principals’ business experience managing and operating companies through turnaround and their successful track record of renegotiating and sourcing new bank credit facilities.
Challenges
- Three years of declining revenues and operating losses
- Low gross margins in the Supplies business segment
- Excessive warehouse space and costs due to multiple, inefficient Company-owned locations
- Unionized warehouse workforce
- High inventory levels with declining sales
- Lack of sound financial management including gross margin analysis, inadequate cash flow reporting, minimal key metrics tracking plus no financial plan to monitor actual results against
- Bank relationship was strained; new credit relationship may be necessary
Our Process
We completed a thorough review of the Company’s operations and financial performance to date including an analysis of gross margins for all product lines. We analyzed current cash flow and prepared a 13-week rolling cash flow forecast for the Company to operate within. We completed an organization review to assess the strengths and weaknesses of management and employees. Turning Point then prepared a SWOT (strengths, weaknesses, opportunities and threats) analysis on the Company, generating a realistic operating and financial plan for the upcoming fiscal year with recommendations for immediate action necessary to improve the financial results of the business. Additionally, we prepared a longer range operating and financial plan with specific recommendations to be implemented. The analysis and the short and long-term operating and financial plans along with our recommendations were presented to the Bank.
The Success
The Bank concurred with our assessment and recommendations for a business turnaround and our short and long term financial/operating plans. The Bank agreed to maintain the current credit facility for the Company until a new credit facility was secured. Turning Point assisted the Company with the implementation of certain recommendations. One of the most critical recommendations was the sale of a warehouse location which converted an under-performing asset into needed cash. The sale of the warehouse location was completed within six months. With an improved balance sheet, the Company secured a new credit facility with lower rates and better terms from a local bank. The Company is now operating successfully and profitably.
