Situation: A sixty million dollar manufacturer with nine retail outlets loses control of an ERP installation resulting in the inability to close the books and provide financial statements to four banks financing the company. Banks lose patience and begin calling lines of credit creating cross defaults on term notes and a liquidity problem threatening company’s existence. Overwhelmed CFO quits.
Strategy/Approach: ER responded with two partners in one day.
First partner was charged with getting a handle on the financial systems, finishing the audit from the prior year, getting audited statements to the financial institutions, generating current financial statements, and evaluating staff, controls, the ERP vendor, and the liquidity of the business.
Second partner charged with calming the banks and restructuring the company’s debt, a significant piece of which had to be done in three weeks.
Results/Benefits:
ER was able to fix ERP system, correct problems on eight subsidiary companies resulting from poor planning and setup, and generate statements to the banks in seven weeks. Subsequently, ER trained staff on procedures appropriate to the new system, developed and implemented standard cost system, brought closing time down from months to eight days, replaced inadequate staff and hired a new controller.
Working in a parallel fashion ER was able to satisfy banks that we had the situation in control and bought time to roll several of the short term loans and LOC to a new bank and refinance numerous equipment loans into one long term credit facility that greatly enhanced the liquidity of the company.
ER also identified significant control weaknesses in the retail outlets and installed a POS system to track sales and inventory that the company had purchased but never installed.
Situation: A fifteen million dollar multistate part distributor is experiencing declining sales over several years and increasing investment in working capital, which concerned their bank.
Strategy/ Approach: ER was asked to do a quick assessment of the company and found the following:
Results/Benefits: ER completed review in several weeks and recommended the sale or liquidation of one of the businesses, a five step program to manage inventory and procurement better, adjustments to salesman’s incentive programs, ways to integrate the inventory and general ledger systems, and a significant number of low volume customers be placed on a cash only status. The analysis indicated the programs would result in over two million dollars pulled from the unprofitable and poorly managed aspects of the business could be reinvested in the several key product lines which were missing in the more profitable divisions of the company.
Situation: A $12 million nursery grew 100% from the prior year and anticipated a $600,000 profit. When the audit was finished (at 4x the cost!) the company lost approximately $2 million. The CFO was fired. The auditors we fired. The bank was shocked. Key suppliers that had not been paid were angry, and the business was in danger of being thrown into an involuntary Chapter 11.
Strategy/ Approach: An ER Partner was referred in by an Investment banker and found the following:
ER quickly developed a cash forecasting model within the first week and reviewed the forecast with the bank and all the suppliers. A solid business plan was developed by the entire management team including detailed payment plans for the vendors and specific actions to bring the credit facility back into compliance with loan covenants. The bank became comfortable that management had control of the situation and provided additional gap financing to recover from the overextension of the prior year.
ER analyzed and identified the key metrics of the business and brought the management team together around the plan and the metrics. Additional management resources were necessary and a CIO, Controller and HR manager were hired.
Over time ER lead an effort to tailor an ERP system for the business, and brought in operations experts to optimize and streamline the delivery of product to hundreds of different locations saving the company hundreds of thousands of dollars.
Results/Benefits: The company was profitable the year following ER’s engagement and saw its equity quadruple over the next two years. The company has a capable accounting and finance function which is an integral part of the management team focused on supporting the company. An ER Partner has been the CFO full time for four years and part time for four. In 2007 the company achieved record revenues and profits and enjoyed a close working relationship with its banks and vendors.
Situation: Management of a software company in Healthcare founded by two entrepreneur brothers with the objective of developing a patient registration system for hospitals understood that the rapid growth they were experiencing was beyond their internal financing abilities and that they would need a major partner to help sell their product into the 6500 hospitals across the United States.
The software architecture, development and prototyping systems went well; however, the infrastructure of the company was non-existent. Financial reporting did not exist beyond elementary accounts payable and accounts receivables. The balance sheet had never been reconciled, there was no inventory control and revenue recognition was incorrect. Sales were approaching $5 million per year with virtually no control systems. Cash was consumed by receivables growth, inventory growth and growth in staffing expenditures.
Strategy/ Approach: The ER partner came into assess the situation and proposed a solution that would:
Once the preceding was accomplished the ER partner competitively bid a line of credit and successfully negotiated a $1.5 million line of credit that was supported by the receivables base. Eliminating the rights of the bank to any intellectual property of the firm in the case of default was key to the negotiations.
Results/Benefits: Six months into the engagement the firm was approached by a Fortune 200 company and acquired. The ER partner hired a law firm from his network that had significant M&A experience. Additionally the ER partner was instrumental in the preparation of the five year plan financials, supporting schedules, complying with due diligence document requirements, and the transaction negotiations. Key to negotiations was the structuring of certain payments to the founders that resulted in a tax saving of 18% of the resultant sale price.
After the acquisition, the ER partner led the transition of the company into the systems and policies of the acquiring company.