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 Management Advisors 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. The principals of Turning Point Management Advisors were selected based on their manufacturing, operational and financial backgrounds.
Actions
After months and years of losing money, the Company, lead by Bob and Mike, began turning a profit within 90 days of engagement. We assessed the Company’s strengths and weaknesses, analyzed their financial situation and revenue streams. 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. Given the dire financial straits of the Company, significant opportunities to drive down costs and improve margins would take time. Since the Company did not have a lot of time, selected pricing and surcharge adjustments and focused cost cutting measures were implemented. The Company was operating under a Bank forbearance agreement with a credit renewal due only 4 months after we were engaged. Thus, the strategy was to focus on the top line giving enough time to drive profitability and pay down bank debt.
Outcome
The bank renewed its Credit Facility with the Company, removed the forbearance agreement, and implemented standard terms and conditions. The Company paid down approximately $5,000,000 in debt owed to the Bank and was consistently profitable. The Company hired new top operation’s and sale’s leadership, improved its processes, reduced internal scrap, focused on cash management, and began to implement frequent communication with its employees. And the Company was able to retain most of its employees based on this turnaround effort.
