Case History: Turnaround Management & Recovery

Consumer Products Goods Manufacturer & Distributor

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FIRST ENGAGEMENT

Through a 4-Phase turnaround approach - Analyze-Stabilize-Optimize-Maximize - a strategic plan can be developed that leads to viable performance improvements and a troubled credit exit.

Situation

Situated in east Atlanta is a $4.1MM revenue-generating manufacturer and distributor of consumer packaged goods (CPG). A family-operated small business of almost 40 years the company has grown to house six brands that include innovative oral care products, grilling accessories, baby and toddler accessories, a skincare line, pet oral care, and kitchen/bath/home solutions. In spite of its strong reputation and devoted leadership, ownership felt like the company was a startup with profitability, but cash flow challenges were compromising performance and leading to insufficient debt serviceability. Results from an initial analysis showed revenue was driven by an extended Days Sales Outstanding with no short-term cash flow, no sound strategic marketing plan, a lack of effective inventory management and control systems, and no policy, procedures, or training for managed growth. Results from a follow-up analysis several months later showed improvements with marketing initiatives from a new social media engagement, however, the business remained challenged with balanced inventory leveling, line-item profitability, invoicing procedures, negative equity, and two key concentrated accounts had decreased orders.

Objective

The lender was ready to foreclose. Fortis Business Advisors was referred to CPG by the lender with the goal of a comprehensive analysis, and if viable, a turnaround and/or credit exit to avoid further action. Specific requests from the lender included 13-week initiatives and cash flow projections, an obsolete/slow-moving inventory report with a monetization plan, and a written business analysis report evaluating continued viability and a turnaround plan. Other challenges to address included a sales and marketing strategy, enhanced sales skills, top 10 customer analysis, inventory procurement analysis, break-even, invoice and collection controls, SWOT analysis, established mandatory minimum profitability, a standard operating platform, and a “go to market” strategy.

Results

A 4-phased turnaround was initiated: Analyze-Stabilize-Optimize-Maximize

 

As performance improved and the lender gave more “runway,” by lender request 3-sets of 13-week initiatives were developed over the course of the turnaround.

 

A strategic plan was developed that led to improvements in operations, organization, communication, branding, sales and marketing, leadership, and decision making.

 

Initiatives included expense reductions, compensation planning, short-term cash solutions, a new organizational structure with defined roles and alignments, reengineered job descriptions and resource allocation, a fully-integrated sales and marketing plan, sales management system, marketing collateral and rebranding initiatives, across the board KPI measurements with targeted benchmarks.

Comprehensive historical and projected Working Capital and Financial Ratio reporting was developed to show the effective use of funds.

As CPG turned around, the key equity holder recognized the continued business viability and initiated a real-estate backed loan to exit the original troubled credit.

SECOND ENGAGEMENT

 

In crafting an analyst mosaic, in addition to the benefits derived from financial review, a comprehensive and line-item inventory review will drive pricing efficiency and prevent sluggishness.

Situation

A well-established consumer packaged goods (CPG) company re-engaged Fortis Business Advisors to assist in a comprehensive analysis of the current financial and operational status of the business. Due to inventory challenges, a particular focus was to be placed on Optimal Inventory Turnover, Inventory Break Even, Days Inventory Outstanding, and their impact on pricing levels both collectively and at the line-item inventory level. During the initial engagement, Fortis had been referred to the company by their financial institution with the primary objective of getting a window into the organization and stabilizing the operation by employing comprehensive turnaround initiatives, including 13-week cash flow assessments, cash conversion cycle, A/R, A/P and inventory analysis for borrowing base efficiency. Once the business was stabilized and on a path to turnaround, as top-line performance and efficiency improved, a new capital structure was organized with a new lender. The primary objective of this engagement was to review improvements since the last analysis, and identify core efficiencies with inventory maximization.

Objective

Fortis reviewed results from the initial engagement to establish a basis for the business's performance. Fortis then proceeded to analyze 4-years and a trailing 12 months of financials to outline the company's current financial condition, especially considering its emergence from Covid-related challenges. In analyzing the inventory assets and potential challenges with maximization, Fortis reviewed comprehensive inventory metrics as well as individual product line turn rates, optimal turn rates, and an analysis of how much inventory is on hand for the current sales trajectory. To further review how the inventory was affecting pricing strategies, Fortis analyzed both comprehensive and line item break-even by units and dollars to establish a break-even price that could be benchmarked against current pricing.

Results         

The combined results from the multi-tiered inventory analysis allowed management to craft a strategy to shed slow-moving inventory and evaluate pricing efficiency for the most profitable product lines.

In the financial analysis, a comprehensive Ratio review was performed to highlight trends, performance, and strengths of the business as they compared to previously reviewed historical periods.

Other deep dives of the analysis included, but were not limited to: Solvency & Capitalization, Working Capital Requirements, Break Even Requirements, Comparative Operating Efficiency, Profit Support, and Controlled vs. Uncontrolled Cost Breakdown.