Situation
A mid sized iron foundry in the Upper Midwest had been losing money for 3 years in a row and had defaulted under their credit agreement. The Company was operating under a forbearance agreement with the Bank and the Bank had lost confidence in management. The Bank insisted that the Company hire turnaround professionals. The principals of Turning Point were engaged to assess the Company’s financial and operational plans, to manage the cash crisis, drive a turnaround and re-establish the basis from which to renegotiate the credit facility. Turning Point was selected based on their manufacturing, operational and financial backgrounds
Challenges
- The Company was operating under a Bank forbearance with high banks fee and interest.
- Cash burn was over $150,000 per month.
- Management had no operating plan to run the business day-to-day, much less turn the business around.
- The owners wanted help to solidify the company’s position for the future and keep the 150 jobs in place.
Solution
After months and years of losing money, the Company, with Turning Point guidance, began turning a profit in within 3 months of engagement. Cash burn was eliminated and positive cash flows began within that 3 month period. We assessed the Company’s strengths and weaknesses, analyzed their financial situation and revenue streams. Since the Company did not have a lot of time, selected pricing and surcharge adjustments and focused cost cutting measures were implemented. The quickest and most effective strategy was going to be driven largely by aggressive pricing and cost cutting as well as aggressive cash management. The price increases were focused on those customers identified with low margin products. Expense were cut and the Company streamlined the organization.
Results
- Within 3 months, the Bank renewed its Credit Facility with the Company, removed the forbearance agreement and implemented standard terms and conditions.
- The Company paid down around $5,000,000 in debt owed to the Bank and was consistently profitable.
- Top operation’s and sale’s leadership were hired and the organization improved its processes with frequent communication with its employees.
- The Company was able to retain a majority of its employees based on this turnaround effort.
