Refinance and Funding
Background and Diagnosis
Over the preceding few years, a mid-market private business – with units coast-to-coast – had made missteps with respect to product mix selection, declining sales effectiveness, lax operations, and a protracted (and incomplete) information technology roll-out. Bottom line: financial performance was suffering, and the company’s long-time commercial lender had lost patience several quarters earlier after the company tripped a loan covenant. Just a couple months prior, the bank had transferred the company’s relationship to its internal workout group. The bank’s expressed desire was the company needed to secure a new lender or face liquidation.
Many factors had contributed to the business stress. The prominent symptom was excessive inventory. The excess inventory had its roots in poor/declining sales discipline coupled with a “buy and forget” new product strategy. As well, purchasing authority was distributed across the organization and not coordinated – no checks and balances as to what was “in system” and selling (or not). Accounts receivable was managed without metrics or accountability and aged balances varied widely across the business units. The sales team historically had no internal targets or anything else that aligned sales to new product initiatives.
Actions and Solutions
Instilled discipline with inventory purchasing and created authority levels which required CFO sign-off on all major purchase of product. The newly implemented purchasing process halted satellite units from buying directly from vendors and centralized to regional unit hubs.
Operations leadership was moved from the sales director to the CFO to better coordinate a focused inventory reduction initiative. A target was set at 20% inventory reduction over a 9-month period. To ensure progress, a weekly operations conference call cadence was established to answer for inventory increases against the program plan reduction. Reporting was developed to show progress against the 20% reduction program end-goal.
The collections group was reorganized, and reports were created to highlight significant aged accounts by region. Reporting scorecards highlighted differences and created a base from which to share best practices nationally and drive DSO to better support healthy working capital.
Established a cash forecast discipline and priorities to ensure company solvency. Elevated controller to have authority across all regions and worked with same on weekly liquidity, making sure disbursements were available for key constituents/partners.
Implemented the company’s first annual sales forecast with allowances for differences between regions and seasonal variances. Aligned regional targets to individual sales team members to instill accountability and track month over month performance against plan.
The company did not have in-place FP&A discipline and relied on a third party firm to help build a multiyear financial forecast. The same firm assisted CFO with selecting pool of potential lenders – commercial and non-bank – to vet potential partner/lenders to take out incumbent loan position.
Created pitch-book for various lenders (deal room) that highlighted nine-month improvements from baseline – showing achievement of inventory reduction, operational discipline (including purchasing) and sales accountability.
Successfully secured non-bank funding for company to continue forward.