Quick Response to the “Perfect Storm”

Situation

The owner of a 20-year-old specialty manufacturer started seeing business levels drop off dramatically in the current economic crisis. The owner realized that his future success was dependent on a quick response. Having worked with Platinum Group successfully in the past, he called for help with managing business through this difficult time.

Challenges

  • Severe and rapid decline in revenues down more than 30 percent.
  • Fixed expense structure had been untouched by the economic tsunami and the management team didn’t have the financial experience to handle the situation.
  • Erosion of the creditworthiness of its customers.

Solution

Platinum reviewed the company’s break-even point and created a 13 -weekly cash flow forecast to more effectively manage cash in a tough environment. The company needed to address cost cutting, which is becoming the norm in this economy. It was recommended that the owner take dramatic action by making pay cuts and reducing staff to a fourday workweek, which also is becoming more common. The company implemented a policy of paying C.O.D. on new orders – matching revenue and expense – and buying only needed inventory. By holding its liabilities in check the company was able to conserve much needed cash and preserve its vendor relationships. The owner approached his bank to discuss more credit availability and the possibility of deferred rent with his landlord. Calls to vendors looked towards ways to partner together and gain a pulse on the industry. In addition, Platinum developed and managed an open-to-buy schedule to handle any vendor issues, on a daily basis, that may preclude the company’s purchasing department from making timely deliveries to the manufacturing floor.

Results

Projected positive cash flow for the upcoming quarter and a credit-worthy status have been maintained. Sales are starting to slowly inch back to profitable levels.

Most importantly, customers are happy.

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