Manufacturing Case Study
Our manufacturing client engaged YOCFO due to covenant issues affecting the renewal of their bank credit line. Their financial team included an in-house controller and an accounting AP/AR assistant. YOCFO went to work!
Comprehensive Financial Infrastructure & Process Understanding
The first step for this manufacturing company was for the YOCFO team to gather a complete understanding and evaluation of banking documents. This included covenant review and uncovering any weak spots. Due to declining revenues, over a multiple-year period and vulnerable industry concentrated metrics, the company was on the bank's "watchlist".
Our team reviewed and evaluated all historical financials and charted the ebbs and flows of the business, including seasonality and why the dip in revenue was apparent. With historical profitability metrics, a one-time disruption was explainable. We also highlighted the differences in current line covenants vs. new restrictions the bank was proposing. This allowed YOCFO the ability to create summary language to put the manufacturer in the best position to close the bank credit line renewal at a minimum.
Our post-closing strategy recommendations included proper budgeting, cashflow, revenue generation and production models and reporting as a prelude to replacing the banking relationship with a financial institution that offered better terms.
Financial Infrastructure & Process Overhaul
As a cohesive team, we were prepared for the replacement of banking services and restrictive covenants that hindered our client's growth. In order to better inform the needs of the sales process, we created a company-wide rolling projection (budget) that helped to identify and manage revenue and costs at a department level.
Transparent use of this budget with the bank throughout the year highlighted the management of the business, its expenses and revenue generation diversification efforts.
Convincing the company's leadership to fix ongoing balance sheet differences in order to right-size ratios, allowed for the owner to contribute a one-time six figure sum to the company to fix separate due to/from transactions.
Revenue Generation Diversification & Predictability
The YOCFO experts performed a complete industry diversification push and review of our client's sales metrics and process. The manufacturer's sales strategy was not moving forward in a way that allowed production of expanded revenues, continued diversification and competitive advantages.
Together, we rebuilt a go-to-market strategy that highlighted customization over commoditization, modernized the commission process along with pushing the VP of Sales to bring goals, metrics and other sales reporting into our monthly meetings.
The result? Overhaul of the sales department made prospecting, quoting and sales closures more efficient using a much smaller, online and end-user focused approach.
With oversight of the controller, tax accountants and other support staff the client was empowered to do their job in a more contextual and informed manner. The controller leaned into the support and updated all the management software needed to better reflect costing, sales and inventory management.
Together, we interpreted all FP&A output for Leadership so that they could focus on revenue diversification and generation, production efficiencies and effectiveness and….GROWTH.
Having a clean financial process, our client can also begin the planning of expansion initiatives, acquisition objectives and/or other exit scenarios as part of a multiple generational business construct.
Revenue dipped from $10-6M when they went through the bank issue. YOCFO helped them navigate back to close to $10M in 2018 and 2019 with no concentration more than 25% in any sector when previously they had nearly 42% in oil/gas.
Current ratio in early 2017 was 2.0 and now average is around 5.5 to 6 even through COVID-19.
Debt to equity improved from .48 to .43 from average in 2017 to 2020 (nearly a 10% improvement).
Sales team transformed with non-performing direct reps removed and two sales managers replaced. Internal team and new sales manager current direction along with new rep agencies that produce.
Real estate has been sold with money coming back into the company around $500K + to support the recapitalization for growth.
$700K machine is in and installed in February with production ramp up beginning in March/April.