(513) 307-3077
This business is privately owned by one family with several locations in Ohio, Kentucky and Indiana. I received a call on March 15 from the Bank requesting a meeting with me that same day in reference to one of their customers that turned in their monthly borrowing base to discover that they had an unauthorized over advance of $570,000 on a $2,000,000 revolving line of credit. I requested a copy of the Borrowing Base Certificate, their latest balance sheet and income statement. I met with the Bank's line officer and his supervisor. In looking at the Borrowing Base Certificate and the Balance Sheet, I asked several questions that neither banker knew the answer to, problem number 1. The next day the bankers and I had a meeting with the CFO of the Company. The CFO went off on the Bankers and told them that they didn't know or understand the business. He asked them to leave the building. The next day I met with the owners and the CFO was fired that afternoon. My relationship with the company started off on a negative side but at the end they thanked me for staying the course.
Everyday that I was at the business was a challenge, the Company ownership thought that I was a waste of their money and their time. The new CFO became my best ally. He was the company's former CFO and was promoted to Operations Manager. We started off with the 13 Week Rolling Cash Forecast that details weekly spending by expense item versus the budget. A narrative of the reasons for spending variances, both positive and negative was detailed and sent to the Bank every Tuesday afternoon. In the next two weeks every spending line item was reviewed and reductions suggested to the owners. Their answer was NO!
In working with the Bank, the 90 day forbearance agreements had several milestones that the company had to meet or be in default which could lead to liquidation. I asked the two owners what their plan was to survive if the bank pulled their line of credit. They said that they could last no more than 4 weeks. They finally realized that the games were over and that they had to start to react to the changes that needed to be made. Their current volume was $25,000,000 with an operating loss of $250,000. After the owners started to listen, unprofitable and out of market operations were sold, inventories were reduced, personal spending was reduced, non working family members were taken off the payroll, leased luxury cars were returned. The turnaround company was now $16,000,000 in volume and $500,000 in operating profit. The owners were now having fun running their business and previous payroll reductions for the owners and CFO were reinstated. The business was refinanced out of their original bank to a second tier lender. After two years, they refied their second tier lender out and now enjoy a new commercial lending experience with a bank that is more debtor friendly. This assignment was in June of 2008 and the company is open and profitable.
I was called in by the Bank to help understand why one of their customers who had been profitable is now loosing money every month. I spoke to the owner and the CFO. The owner claimed that he was making money on every job, and the CFO says that they are loosing money on every job. I looked at every check and debit that the company processed in 12 months to satisfy the lender that the money was not being spent on personal items. The owners had a separate telephone business line and fax line put in their home for business use. The total cost of this item was $720 a year. I interviewed the CFO to see what the cost drivers were and the method of accumulating all of the costs. I then interviewed the owner who also is the senior job estimator and had him pull one of the closed jobs that he insisted made money and his CFO said that it lost money. I went through the estimate line by line. After an hour of discussion with the owner I was on my way to the answer. I asked the owner if he changed his method of estimating and he said he did to improve his profitability, but in fact he was the main cause of his company losses. The first line on the estimate was the number of cubic yards of concrete needed for the job, the second line was the staffing for the job. Before I told the owner what I had determined, I asked him what happens to the estimate after he completes it. He stated that he gives it to the job superintendent for execution. With his old way of estimating, he also gave the job superintendent the quote for execution. I now had my answer.
I asked the owner to explain to me how he knew that he was making money. He said that the job required 90 cubic yards of concrete and and he put 110 yards on the estimate. He said that at $70.00 a yard times 20 yards that he made $1,400.00 on concrete. He said that the job required 4 laborers/finishers and he put 6 laborers/finishers on the estimate. He said that at $25.00 a hour x 8 hours x two weeks he made $2,000. After I received the information, I explained to the owner that his supervisor ordered 110 cubic yards of concrete, put 90 yards in the job and 20 yards on the ground that he had to pay to have removed. The total loss on the concrete and removal was $1,800. The job superintendent had 6 laborers/finishers on the job and lost $2,000.00. The job superintendent followed the estimate as his guideline for doing the job. Even if an estimate didn't look right, no one was allowed to questions it. I revamped the estimating program to reflect actual cost of labor and materials and also gave the owner the ability to either pick his profit margin or his selling price to determine his profit margin. Profitability started on the very next day. This initial assignment was completed in August 2005, the company retained me for an additional six months to make sure that they didn't go back to their old ways. Today the company had tripled its size with solid profits and has worked on many Marque jobs in the City of Cincinnati.