PRIMARY: Determine the long term viability of the business
SECONDARY: Strategy for improving gross and net profits

INDUSTRY: Roadway material recycling subcontractor

COMPANY: $10 million a year in sales

SITUATION: Owned by two brothers who took the company over from their father. Poor bidding practices, lack of management information and bad weather combined to create:

• 2% gross profit and $800k loss in the most recent year
• $1.5 million LOC was maxed out and no payments made for several months
• The bank was pulling all financing
• Highly seasonal, most revenue was generated in 6 months each year

The secondary financing firm suggested that the company engage the services of a turnaround professional.

SCOPE OF WORK: Steele Development was brought in to develop a cash flow plan, assess the company's short and long term viability, develop a finance plan and secure funding and to improve operations and profitability.

TASKS PERFORMED:

• Within three weeks SDC developed a cash flow plan and 12-month budget based on known business operations.
• Secured $900k in equipment financing to retire $700k in equipment debt
• Arranged for refinancing the owner's facility to raise $500k in cash
• Secured a secondary $500k line of credit collateralized against accounts receivable
• Improved collections on accounts receivable and retainage so that the new $500k LOC was sufficient for positive cash flow
• Improved Gross Profit Margin by 15% of sales, allowing the company to make progress in paying down its new LOC
• Implemented a daily scorecard reporting system from job superintendents
• SDC consultants worked with the firm's controller to reduce the reporting cycle on job costing so that the information could be acted on soon enough to change the outcome on jobs.
• SDC worked with the owner to improve the gross margin during the bidding process and eliminate jobs with low potential for acceptable profit.
• Equipment repair costs were reduced from $1.5 million a year to less than $1 million
• SDC designed and installed a formalized functional and organizational system which improved employee accountability.
• SDC worked with the owners to develop a strategy for increasing off-season sales by $1 million, reducing the pressure on peak season operations.

RESULTS: Over the course of one year the owners went from being undecided about whether to stay in business to dedicating themselves to becoming one of the best $10 million highway construction companies in the west. Having regained their financial footing the company is repositioned for standard bank financing within a year and is producing above average gross profit for the industry. SDC helped turn the company into a profit-centered enterprise, dependent on its LOC for seasonal operating costs in only thee or four months of the year.