PRIMARY: Cash planning and control
SECONDARY: Help plan for selling off a division

INDUSTRY: Record Storage and Document Management

COMPANY: < $1 million a year in sales

SITUATION: Under the leadership of sales-oriented owners, a team of career sales professionals lacked the operational controls needed to assure profitability and longevity. Started two years ago, this company was financed by friends, relatives and associates - operating at a loss of about $300k through the first 9 months of the current year.

• The owners expected to do about $s million in sales in the next twelve months but current sales were < $65k a month. Although complex sales pipeline tools were in place, monthly sales were inconsistent and unpredictable. Sales projections were wild guesses and hopes based on often unrealized opportunities. Production was inconsistent and almost completely shut down due to lack of cash for payroll.
• A $75k short-term note, collateralized against personal assets and accounts receivable, was due in 30 days. An eviction notice had been received from the warehouse landlord. Over $90k in credit card debt had been accrued and payments were typically > 60 days late.
• Several potential buyers had expressed interest in different parts of the company but total debt outstripped the total value of the companies.
• Past payment commitments had not been met and the IRS levied the bank account for over $20k.

The receivables factoring form suggested the company engage SDC, 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 of each of the company's three divisions, develop a finance plan, negotiate debt with taxing authorities and vendors, assist in reducing fixed overhead, help control production costs and improve profitability.

TASKS PERFORMED:

• Within three weeks SDC developed a cash flow plan and 12-month budget based on known business operations. SDC developed an analysis of the sale of single or multiple divisions and recommended a course of action.
• Under SDC's direction the owners refinanced their home to satisfy the over-collateralized $75k note. An additional $75k HELOC provided operating capital while operations were stabilized. A temporary payment plan was negotiated with the IRS until the sale of one division was completed.
• SDC helped in developing a Production Control Report for projecting and tracking sales through production each month, and a Cost Analysis model from tracking project labor costs.
• Using the SDC Cash Flow and Budget models, costs were broken down into cost groups assigned to managers who were held accountable for results within acceptable limits. Under SDC's guidance, the company cut overhead by eliminating non-productive positions and spent more effort developing a smaller staff.

RESULTS: The added capital from HELOC provided the cash needed to make immediate production payroll, opening the production bottleneck on backlogged orders. Operational capacity was matched to meaningful sales projections. One division was sold, bringing in over $175k in cash - enough to fund operations through break-even and into profitability. One of the two remaining divisions set a record of sales through production in the second month. Production assets which had been collateralized are owned free and clear. Cash on hand is sufficient to eliminate the need for receivables factoring, having another $130k a year in interest. Break-even sales needed for cash flow was reduced from $145k to $73k in the first three months.