Turnaround Report: Defining a New Benchmark for Profitability

Situation

A rapid market decline in the wake of 9/11 created severe cash flow issues, including payment problems with vendors, for an 18-year-old commercial fixtures manufacturer. The company’s accounting firm referred the owners to Platinum to weather the storm and guide this family-owned business back to profitability.

Challenges

• Cuts to operating expenses were not made quickly enough in response to the market shift.
• Vendors would not supply product in a timely manner due to the company’s cash flow situation.
• Outsourcing some of the work was costly in terms of time and expense.

Solution

Platinum was named CFO in 2003 and quickly worked with the owners to take a different approach to managing their company.Within two weeks, a break-even benchmark for profitability was defined to drive down expenses and increase operational efficiencies during the soft market. Over the first 12 months of Platinum’s involvement, vendors were approached informally to solicit their cooperation to work with the company during the rebuilding efforts. Positioned for a different market, the company invested in equipment and processes to expand business in targeted markets, cutting response time to their customers by bringing certain work inside in lieu of outsourcing. Benefits of this decision included more control and faster turnaround at a reduced cost.

Results

Within ten months the company returned to profitability and has stayed the course. Platinum continues in its role as interim CFO and mentor of the owners. As the market improved, the company was better positioned to gain market share while holding the line on expenses — forcing a competitor to go out of business.

Platinum is assisting the owners in exploring various options that are now available to them, including a sale of the company, an option that did not exist at the start of Platinum’s engagement.