Cost & Profitability Analysis / Receivership

A U.S. Welding and Manufacturing Co. had incurred losses for 30 consecutive months and had maxed out its credit line, completely depleting itself of operating cash. They wanted to sell the company but their balance sheet was not conducive to a sales transaction.

Challenge:

  • Cash Flow was non-existent.
  • The business was deteriorating rapidly.
  • The lending institution was not extending credit.
  • Costs were primarily fixed rather than variable.
  • Inventory and Accounts Receivable was not being managed.
  • Fortune 25 customers were dictating profitability.

BIG Actions:

  • Completed a root cause analysis to determine whether to implement a turnaround plan or liquidate the company.
  • Developed a comprehensive turnaround plan and then acting as COO, implemented the plan.
  • Utilized 80/20 analyses to refocus and retrench the company on its profitable customers and industries.
  • “Peeling back the onion” to uncover non-value added tasks throughout the organization and redeployed resources to maximize return on equity.
  • Implemented an aggressive working capital management program to generate positive cash flow.
  • Implemented and refined the company’s ERP system to allow for the implementation of Lean Manufacturing processes.
  • Implemented a new quoting system which led to successful negotiations with the customers allowing for price increases.
  • Implemented a new marketing strategy to allow for profitable, sustainable, sales growth.
  • When the secured creditor and ownership wanted the protection of a receivership, BIG acted as the court appointed receiver.
  • Ongoing management of the company while obtaining a buyer for the company.

The Bottom Line:

  • Processes were refined, the customer base was diversified, prices were increased, costs were reduced and turned variable. The company recorded its first profitable month in over 2 ½ years.
  • $5.7 million dollars of free cash flow was generated to operate the business.
  • Accounts Receivable DSO was reduced by 29 days or 69%.
  • Inventory was reduced by $1.4M (50%).
  • The company was sold as a “going concern” within 3 months.
  • The value realized through the sale was at least double of what would have been realized in a liquidation setting.

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