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CASE STUDY 2 Industry: Manufacturer-Cheese processing and
finishing machinery & equipment Size: 40 employees. Entity: Two Non-public corporations. Situation: $358,000 consolidated loss in current
year; $511,000 negative equity. Findings: Steel and other raw material suppliers had stopped shipping. Bank
reconciliations were not current or accurate; excessive overdraft notices
were occurring for both the regular and payroll accounts. Supplier
invoices and mail were stacked up and unprocessed with some items six months
old. The
previous year-end financial statements were not completed; interim financials
for the first 4 months had not been prepared. Job
cost records and labor hour information did not exist. Manufacturing
throughput was inexplicably long. Major
jobs were being accepted without proper pre-engineering, estimating and
project management. Cash
resources were gone. Action: Took immediate control over cash and
all financial commitments. Immediately
began calling and communicating with suppliers and working out payment plans
and terms for getting product. Implemented
a short-term weekly cash forecasting system focusing on completing and
shipping orders. Properly
staffed the accounting department and got current on all transactions. Stopped
the development of all prototypes. Implemented
procedures for effectively estimating product costs. Implemented
product and job costing systems. Developed
a 4-year turnaround and refinancing plan. Restructured
debt and obtained additional financing.
Results: The company avoided bankruptcy and
survived. Achieved
break-even by yearend. Within
two years, reversed $710,000 product line loss to a $130,000 profit. Improved profitability
$393,000. |