Situation

 

A wholesale distributor company with a manufacturing arm added to its operation that had been in business for 20 years. It was starting to see growth increase to the point where the business was turning over in excess of $12m a year. It employed about 30 people across sales, warehousing and manufacturing, along with a small admin team.

 

They had a MD and a Plant Manager, but no real commercial or finance support except that offered to them by their external accountant and their internal admin staff. In terms of the external accountant, that support generally came in the form of financial and tax advice rather than ongoing commercial advice.

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As the business was growing, so too were their costs, their complexity and their working capital requirements. They were constantly using their overdraft facility to fund operations, and stock turn wasn’t where it needed to be, and as it turned out they also had a lot of redundant stock.

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While the owner was certainly market savvy and commercially conscious, a lot of decisions were being made by feel (gut feel) as opposed to applying any significant insight or analysis. The MD was feeling vulnerable with few people to turn to. Some of the decision making turned out to be ok, while some didn’t. All around the business were loose practices with the reason for doing things a certain way being because “we’ve always done it this way”.

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The business essentially had grown up from its infancy but hadn’t necessarily matured from a systems, processes, and personnel perspective.

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Our Approach

 

Our business advisor was asked to come in and assist in shoring up the finance function, add some discipline around the following:

• monthly management reporting and analysis of business performance,

• get involved in the business’s strategic planning and budget setting, and in particular its growth strategy.

• look at the cashflow position, stock management and margin analysis by product groups,

• and just offer better support to the MD and senior management team as the business continued to grow.

 

It turned out that Covid was kind to the business and growth accelerated. But that put greater pressure on certain staff and parts of the business to perform, when skillsets and systems weren’t there to cope.

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We were regularly in the business (1 day a week) helping support the MD, introducing processes and controls that qualified the financials, allowing for better understanding of the numbers. We brought in KPI’s across the different departments, that were based on outputs and deliverables, measurable by system generated data so as not to create an industry out of a process.

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We helped identify the gaps in skillsets needed by the business and helped fill them by upskilling existing staff, or brought in that added skillset. We undertook a risk assessment of the business and what mitigating risk strategies were needed to minimise their effect. That risk management profile became a topic of conversation monthly at the senior management team meetings.

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As part of their strategic planning, we looked at the current state of the business, where they wanted it to be, what opportunities existed to get there, but also what constraints, particularly internal constraints would stifle business growth, and what needed to be changed to eliminate those constraints. We were also tasked with overseeing the change management process.

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Training and personal development programs were established where deficiencies existed. Systems were assessed as were existing business processes and controls to determine their appropriateness for a growing business.

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Monthly review meetings both at a senior management level and with Heads of Dept’s (HOD) were instigated. The HOD meeting focused on going over KPI’s and issues associated with delivering on them.

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Cashflow forecasting was quickly introduced as were regular stock management reviews. Future decision making included more forethought around the pros and cons, risks and rewards, with more rather than less analytics involved.

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Sure there was disruption that had to be incorporated, especially as Covid took hold. But by being able to also work remotely (not our preferred option) we still provided that extra support around what was happening, what the outlook looked like and how all that impacted business performance and decision making – profitability, productivity, cash & funding position and asset management (stock and debtors in particular).

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Outcomes

 

• An MD that felt better about how the business was run, less stressed and more informed.

• Relieved to have someone to bounce ideas off and who could help implement changes and improvements within the business.

• Gave the MD greater credibility with the bank around his numbers, business performance.

• Help get better engagement across the business.

• Decision making was based more on business intelligence on what was happening and anticipated going forward with detailed analysis, rather than just gut feel.

• General commercial acumen within the senior management team improved.

• Business controls, processes and procedures were better defined and better aligned to future goals.

• All-round business performance improved culminating in more consistent profit generation.

 

The business moved from shifting in and out of profit, to maintaining consistent 12-15% Net Profit while also growing at in excess of 20% year on year.