A family owned investment firm, focused on building a portfolio of growth oriented, privately held, companies throughout the local region, acquired two outstate, Minnesota-based, manufacturing companies providing bulk material transportation equipment to the over-the-road tank and trailer industry. The two companies were merged in mid-2010 to gain operating efficiencies. New executive management was brought in to lead the newly combined entity. Unfortunately, under the new management, the company was not profitable, experiencing significant cash flow losses every month plus the integration failed. In the beginning, sales had increased every month; however, the operating and cash flow losses continued to mount and the Company had drawn down $2.8MM on a line of credit. Half way through the year, the CEO, acting CFO and other management personnel left the organization. Turning Point was engaged to provide interim executive management services and to assess whether the business was truly a going concern. Turning Point assumed the roles of executive management and were charged with running the Company’s day to day operations and reported directly to the Company’s board of directors.
- Number 1 question – Going concern?
- Improving revenues while continuing to generate operating and cash flow losses
- Large build up in line of credit to fund losses
- Low gross margins in trailer products
- High inventory levels given sales volume – History of material and sizable book to physical inventory write downs
- Board was lead to believe backlog was close to $3MM yet order backlog was nonexistent
- No targeted or concerted sales effort in place
- Lack of sound financial management including gross margin analysis, inadequate cash flow reporting and minimal key metrics tracking
- Vendor payments were well past due creating raw material/supply delivery concerns
We immediately set out to stabilize the business operations, implemented communication meetings with all employees as to our process and conducted the following:
- Cash flow analysis to understand opportunities to reduce cash needs immediately
- Completed a 13-week rolling cash flow model to manage against
- Reviewed all product gross margins analyzing costs associated with current orders and backlog to determine level of profitability and determine if immediate price increases were necessary
- Addressed inventory levels reviewing excess inventories, valuation and purchasing management
- Operations review and assessment to understand production scheduling, process flow and floor layout, throughput, etc.
- Organization assessment to determine correct number of employees, skill set and job responsibilities
- Addressed the vendor past due situations with immediate communication
- Created a business plan and forecast
- Conducted a market opportunity and competitive analysis for the Company’s current and potential future products
- Developed a three year strategic and financial plan
The Company was cash flow positive for the entire second half of the year due to increased sales, greatly improved product gross margins, a 30% smaller organization and reduced cost structure. Through Turning Point’s market and competitive analysis, the business altered its product offerings and the vertical markets served creating an extremely viable business going forward. Turning Point’s three year strategic plan has provided the roadmap for long term growth and profitability. The Company’s board of directors has retained Turning Point to provide interim executive management and execute the strategic plan on an ongoing basis