Managing After the Loss of A Leader
As we launch into the New Year, many CEO's seek to reinvigorate their businesses but are confronted by a number of financial and operational barriers. I'd like to share another example of how KGI has helped a company break through those barriers and position their business for growth.
This case involves a nearly insolvent manufacturer that was left leaderless after the death of its Founder. Working in partnership with KGI the company was able to return to profitability, increase cash flow by $.9M, and obtain both new financing and equity investment in a very short time.
Please feel free to call me to discuss this example and the many services we provide.
90-days away from insolvency, the team implemented a turnaround plan within a four-month period that:
- Increased cash flow by $.9 M
- Returned the company to profitability
- Obtained new financing
- Prompted additional equity investment of $.6M
- Avoided bankruptcy
Until the death of its founder, this privately-held manufacturer of water and air filtration systems with annual revenues of $15 million had consistently been profitable and generated substantial free cash flow. The business operations were complicated by a recent out-of-state acquisition that had not been fully integrated. Poor expense discipline coupled with a shockwave to the supply chain created a liquidity crisis, causing the company to quickly veer from profitability to an annualized EBITDA loss of $1.0 million.
Uncontrolled expenses and a production stop due to a supplier's quality issue resulted in growing losses, negative cash flow, and an increasingly strained relationship with the lender.
The company's lender transferred the relationship to its special assets group and requested that the company seek new financing alternatives.
With the prospect of a cash crisis and losses for the first time in the company's history, management and shareholders requested assistance from KGI in guiding the Company back to profitability.
Implemented Turnaround Strategy. Working in tandem with the management team, KGI's consulting group identified and quickly addressed two key areas by:
- Reducing the administrative headcount and discretionary expenses for a $780k annual improvement.
- Improving the forecasting methodology and raw materials safety stock levels thus generating $600k of free cash flow.
The successful implementation of these initiatives resulted in a return to profitability in the fourth quarter and significantly improved cash flows with no negative impact on production, service levels or revenues. Cash reserves, which had been depleted to nearly zero, were restored to approximately $400,000 before year-end while the company simultaneously repaid more than $475,000 of past due trade payables. These achievements were the foundation to obtaining new bank financing and equity participation. KGI also identified other profit improvement projects that, once fully implemented in the upcoming fiscal year, should bring annual EBITDA to more than $1.5 million.
Secured Replacement Financing. 90-days away from missing payroll and defaulting on scheduled debt repayments, KGI's experts were engaged to validate the turnaround plan and negotiate an extension of the existing bank loan agreement, providing the Company time to implement the cost-saving initiatives.
KGI assisted the company in obtaining an asset-based lending arrangement which funded the majority of the existing loan repayment and will provide the working capital to finance the Company's future growth.
Prompted New Investment. Based on improved prospects for the Company's future profitability following the turnaround plan, the Company's shareholders invested an additional $600,000 and have expressed the willingness to invest up to an additional $900,000.
Whether a Company is struggling financially or on the cusp of breakthrough growth, KGI can help. Our seasoned experts work alongside management to solve complex cash flow issues, operational challenges and other business crises. If liquidity or sale is needed, KGI provides a powerful combination of services and expertise to achieve outcomes that cannot be duplicated by other standalone consulting firms.