Challenges & Results
Transition Management
Working Capital Optimization
Challenge: Recognize the depth of a cash flow problem and implement a solution for business survival of a privately-held company.
Background: Define the depth of the shortage and identify other pertinent factors (off balance sheet obligations-hidden invoices, verbal agreements, side deals, etc.) and or embezzlment.
Actions:
- Reviewed financial reports and records
- Interview key personnel
- Exhaustive review of related documents
Results:
- Uncovered $1million in unrecorded obligations
- Made payment arrangements with vendors
- Disputed invalid items
- Negotiated settlements
- Connected key quality issues to vendors – filed $4 million counter claims
Financial Statement Review
Challenge: Review the financial statements to assist in determining the go forward strategy of the business, a family owned manufacturer.
Background: The financial statements of family owned and privately held businesses do not normally receive the level of scrutiny (internal or external) that publicly held businesses receive, which means that frauds can go undetected longer.
Actions taken:
- Identified sales increases without corresponding earnings increases
- Discovered inventory build as returns increased and quality decreased
- Linked extended warranty term change to simultaneous changes in supply chain
Results:
- Estimated warrant reserves were under accrued by $3 million
- Calculated excessive inventory reported at $2 million
- Corrected balance sheet accounts originally reported by $1 million
- Restated reported financial statements in excess of $6 million
Vendor Relationship Management
Challenge: Conduct a complete business review for a privately held company as part of developing an overall turnaround plan.
Background: Understanding vendor relations and activities is a key transition step that often uncovers unique aspects about the business
Actions taken:
- Financial and operational review
- Link vendor claims to quality issues
Results:
- Determined actual value of true unrecorded ($1 million) payables
- Proposed reasonable solutions to maintain product delivery – payment plans, schedules and counterclaims
- Improved process – record and pay vendors properly
Change Leadership
Challenge: How to organize and motivate employees in a post acquisition environment when the decisions regarding their future employment are not finalized. The goal is executing results through people
Background: The company was purchased from bankruptcy. The remaining employees had seen several layoffs, cost-cutting, management changes and now a new corporate owner.
Actions taken:
- Establish the leadership role of the transition manager
- Motivate employees throughout the transition
- Provide key employees with overall concepts –details as they become available
- Speak to the entire affected group initially and as events warrant
- Dispel rumors quickly
- Discuss alternative outcomes that are contingent on events unfolding
- Maintain credibility even when news is negative
Results:
- Seasonal build executed ahead of schedule
- Key employees provided opportunity to train new suppliers
- Plant shutdown on time and budget
- New site start-up on time and under budget
- No work stoppages or slowdowns
Exit Strategy
Challenge: Sell a privately owned business for retiring owners and long-term stockholders who really want to take the money but keep the business.
Background: This desire is a common tendency, particularly for founders and family businesses who want the best of both worlds. While there are earn-out strategies, incentive payouts, ESOP plans and various other tools and techniques that offer hybrid solutions, this example is the traditional sell and exit.
Actions taken:
- Owner made demanding requirements
- Reviewed and proposed solutions for each issue
- Keep owners informed of progress but not too detailed
Results:
- Owner offered a consulting role by seller
- All identified issues resolved timely
- Price and all key terms agreed
- Deal closed at 9 x EBITDA multiple ($19 million)