Situation
A small aluminum foundry with sand and permanent mold operations, based in the East Central United States, had been losing money for several years. The company had severe cash flow problems as it was struggling to meet pat due supplier obligations to continue operating as a going concern. It had used all its available credit on a working capital line and was struggling to stay current on its term debt payments. To complicate matters further, the company had not paid, for some time, employee withholding taxes, union dues and 401K contributions. The Company engaged a factoring company to accelerate cash receipts, but it was still struggling to gain continuity in manufacturing operations as many suppliers had placed the Company on COD terms. Turning Point Management Advisors was engaged to manage the severe cash crisis, assess the Company’s financial and operating plans, drive a financial turnaround, potentially seek a new credit facility, and re-establish some level of value to ultimately sell the business. The principals of Turning Point Management Advisors were selected based on their manufacturing, operational and financial backgrounds.
Actions
We assessed the Company’s operations, analyzed their financial situation, and examined current cash flow. We determined the quickest and most effective strategy to immediately improve cash flow and operating results was going to be aggressive price increases, commodity surcharge adjustments and cost cutting throughout the organization along effective cash management. The price increases were focused on major customers identified with low margin products and implemented within 30-45 days of engagement. Commodity surcharges were adjusted to provide appropriate margins to the business rather than just a cost pass through to customers. Cuts in discretionary expenses and a reduction in force were implemented after 30 days. Cash management included negotiation of long-term supplier notes for past due amounts owed and 30-day terms for future business to return the organization to a manageable cash cycle. After years of losing money, the Company began generating positive EBITDA (free cash flow) in the second month after engaging Turning Point Management Advisors and for four months thereafter.
Outcome
Turning Point Management Advisors stabilized the business and began operating it on a positive EBITDA basis. In addition, Turning Point Management Advisors renegotiated the factoring agreement increasing the advance rate and reducing the fees. The vendors/unsecured creditors past due amounts outstanding were all renegotiated to improve company liquidity and allow operations to continue. The company was successfully sold to a strategic buyer in the industry saving all jobs in a small community and ensuring the secured creditor was paid in full.
