A Family investment firm in the greater Midwest area invested in two trailer manufacturing companies and merged them together. The merged company had significant losses and made no profit after two years. Cash burn was significantly reduced and funded by internal line of credit after its Bank was unwilling to continue funding the business.
It was unclear whether the Company could ever be profitable and cash flow. The Family Investment Firm had invested close to $7 million in the Company and incurred $2.5 million in recent line of credit borrowings to fund operating losses. There was no clear outlook for a future payback. The first order of business was to determine if this Company was a going concern.
For the first seven months of the fiscal year, the Company’s sales were $4.8 million with a net loss of $1.7 million compared to $4.7 million in sales and a net loss of $1.1 million for all of 2010. 2011 year with negative margins of approximately 10%.
Along with the month-to-month losses the Company was borrowing cash on the related party line of credit at a rapid rate. There were no outside bank credit arrangements. All funding was internal. Accounts payable aging had grown significantly with suppliers placing holds on deliveries until payments were received causing continuity manufacturing issues.
Established Executive Leadership – Turning Point Management Advisors stepped in as interim executive management to operate the Company day-to-day as acting CEO and President and CFO.
Stabilized the Business – Eliminated the cash burn, implemented employee communication meetings regarding goals, profitability and cash flow and executed the short- term actions deemed necessary.
Restructured Organization – Reduced the size of the organization from 48 to 31 employees to fit the current revenue projections. Established the management team, redefined their responsibilities, expectations, and goals.
Increased Production Capacity and Throughput at both manufacturing locations
Reviewed and then adjusted Product Pricing, Product Costs (Materials, Labor and Overhead)
The Company became a going concern again with good financial results. We achieved the following:
Immediately stopped the monthly losses, cash burn and line of credit borrowing.
Greatly improved cash management through timely invoicing, collection of accounts receivable, improved payment terms, reduction of past due accounts payable for better delivery of materials and supplies for increased production output.
Eliminated the dependence on the line of credit.
Increased sales by 37% increase over the prior year while generating gross margin of 17.2%, and EBITDA of 8.6% of net sales