Severe Downturn Created Financial Hardships for Distributor

Situation

A 60-year-old distribution company — a major employer in a small midwestern town — suffered a severe downturn in 2008-2009 due to the economy and its industry. Historically, revenues had climbed to more than $90 million. With a revenue decline of more than 50 percent, the company did not have the financial resources to weather the storm. One of its trusted advisors recommended Platinum Group to the owner, who had exhausted his personal resources and was on the brink of corporate (and potentially personal) bankruptcy.

Challenges

• Inappropriate cost structure for a shrinking company.
• Working capital was severely constrained.
• Inability to obtain product on a timely basis.
• Lender had declared a covenant default and was limiting availability.

Response

Platinum Group was named an officer of the company to lead the turnaround focused on top-line revenue, expense management and working with key vendors to establish an orderly flow of product.

Fixed expenses were reduced by $230,000 per month by eliminating an extensive capital improvement plan, cutting temporary labor and realigning corporate benefits.

An operating plan and interactive, rolling 13-week budget were put into place. Working with the management team via daily communication ensured that cash flow velocity was maintained at a level sufficient to achieve profitability.

Platinum presented the company to a series of banks in order to replace the fatigued incumbent lender, bringing on a new credit facility that provided several million dollars in additional working capital.

Results

The company was profitable within 45 days after Platinum Group was engaged. For the first six months of 2011, the gross profit improved over 4 percent and net cash flow improved by nearly $263,000; pretax income was $436,900 versus a loss of $2.7 million for the previous year. The incumbent lender was replaced by a new lender with increased availability for the now profitable company. What’s more, 130 jobs were preserved and a long-standing member of this business community was pulled back from the brink of bankruptcy.