Case Study – Timely Management Reporting fuels profit turn around
MAMe Business Growth Services were called upon to work with a small but well established and diversified tool & die shop in northern Maine. The company’s highly skilled team of 35 + employees provides tooling design, fabrication, stamping, prototype and production machining for automotive, defense, heating and other industries. Annual sales are about $5 million.
In business for over thirty years, the company founders retired leaving a long time employee and new owner at the helm. Though sales were steady for the next few years, most recently the company had posted monthly losses of as much as $80,000. The owner had no idea what the problem was, which was understandable since he had not received accurate internal financial statements for several months. The bank was stressed and the company was assigned to its ‘Work Out” or “Managed Assets” department, meaning the loan had been downgraded.
Solution - BGS Assessment to Determine the Problem
Usually MAMe BGS would perform an in-depth Business Analysis by getting owner and employee feedback to be coupled with 4 year financial trend and ratio analysis. In this case, the owner would not okay that approach, so we were left with casually interviewing the key managers for their confidential thoughts, basically a quick inquiry out of the owner’s sight. We also requested that the internal financials be brought up to date. It did not take long to uncover the following conditions:
· Late and inaccurate monthly financial statement reporting.
· Inadequate management reporting in the form of a Vital Signs Report or Status Report.
· No formal communication structure, which means no meetings in the areas of management, quality, sales, production, etc., and employee feedback was discouraged.
· Cost Accounting had not been updated for years.
· Because the costing was wrong, pricing was wrong with some products sold below cost.
· Other issues: no automated estimating process, no quality improvement program, poor production documentation, poor inventory location system, poor production planning, and many others.
BGS Recommended Solution – A Profit Recovery Plan & Implementation
· Update cost accounting, re-set the pricing, and create weekly management reporting.
· Create a formal communications structure and feedback mechanism.
· Put together a Work Out plan for the bank, based on an 18 month budget with adjoining projected cash flow, to be updated monthly. Use as a tool to manage the business.
· Negotiate with the bank for more time and court replacement banks.
Over an 18 month effort BGS helped turn the yearly bottom line from a $500,000 loss to a $320,000 profit. The company was able to add employees and invest in both its plant and new equipment.