IDENTIFIED CHALLENGES

• The group had significant loans from a major trading bank personally guaranteed by the owner. The owner had mis-managed the relationship by failing to file the reports and not responding to communications. As a result, the bank gave the owner three months to find alternative funding sources. If he failed to do so, the bank would call in the loans, put the group into receivership and invoke the personal guarantees.
• One of the companies in the group had fallen behind with GST and PAYE payments. Correspondence from the IRD had been ignored to the point where the IRD filed winding up proceedings. The owner was unaware that that a $50,000 debt to the IRD had grown to $100,000 through the addition of penalties and use of money (UOM) interest charges.

Our consultant quickly concluded that the situation was serious and that the owner risked losing everything.

PROGRAMME ACTIONS

• Our consultant established the current financial position of the business.
• Our consultant quickly established regular communication with the current bank to keep them informed of progress.
• The owner's accountant and the Compass South consultant worked together and communication lines with the IRD were established.
• Financial Business Plans including detailed cash flows were prepared for all three businesses for the next five years.
• Other major trading banks were approached to gauge their interest in refinancing the group.

SUCCESSFUL OUTCOMES

• Because of the IRD situation, all other major trading banks declined to be involved. However, negotiations were successfully concluded with a major second tier finance house to refinance the group and the trading bank loans were repaid in full.
• Negotiations with the IRD resulted in the winding up proceedings being withdrawn.
• A reduction in the penalties and UOM interest of $30,000 in return for one lump sum payment was negotiated. The size of the new facility meant that the remaining debt to the IRD of $70,000 could then be paid in full.
• The refinancing package also enabled all supplier debts to be brought up to date. This meant that the business could start afresh with a "clean slate".

Our consultant then commenced working with the business owner to improve efficiency and profitability of the engineering business. In particular, a job management system was introduced to replace the existing manual systems, and the pricing methodologies were overhauled.

These actions resulted in improvements in job monitoring and performance, pricing, productivity and overall profits.

IDENTIFIED CHALLENGES

• Turnover, gross margin and net profit were all declining
• The bank had recently declined additional lending and now required a marked reduction in the overdraft
• The operations manager was no longer able to handle the business’ complexities
• Manual systems did not allow business Key Performance Indicator (KPI) reporting
• Staff productivity could not be measured and jobs were not back-costed; profits were being forfeited as a result
• The business was over-stocked tying up cash reserves
• Staff were making unauthorised purchases rather than ensuring they had all necessary parts with them before starting a job.

Our consultant quickly concluded that the business owners were open to change, the company’s product was valuable in the market, proven opportunities existed for expansion, and the staff were loyal and generally competent.

PROGRAMME ACTIONS

• A company vehicle, surplus to requirements, was sold and the cash banked
• Prices were revised and adjusted
• Procedures for checking staff timesheets to job cards were implemented, identifying profit loss
• Stock ordering was changed to a ‘just in time’ system. Other slow-moving stock items were converted into domestic structures for sale to retail customers
• A 5-year Strategic Business Plan was completed, including 5-year financial forecasts
• A new operations manager was head-hunted and appointed when the old one retired.

SUCCESSFUL OUTCOMES

• Over the first five months, annualised turnover, gross margin percent and net profit all increased by 11%, 3% and 21% respectively
• The (significant) bank overdraft was reduced, and was close to break-even at the end of five months
• New staff processes resulted in an immediate increase in staff productivity by 3%, equating to $25,000 annually
• Stock level reductions and redeployment improved the cash position by approximately $30,000 in the first five months
• An estimated $184,000 annualised net profit was returned to the company in five months
• The 5-year Strategic Business Plan is being implemented as a ‘practical document’, offering the company a genuine ‘road map’ for future positive growth.
• This allowed the business to improve its cash position significantly, to foster better banking relationships and to attract and employ a quality operations manager tasked with further improvements. Staff morale and engagement are improving. The business owners have begun working ON their business, not just IN it and have reported a notable reduction in stress levels.

IDENTIFIED CHALLENGES

• Although enjoying a significant turnover, the business was not making sufficient profits to support the families of the founder and his three sons all of whom worked in the business and made up the management team.
• In an effort to rectify this situation the owners had purchased a similar business located close by but were operating the two businesses as separate stand-alone enterprises.
• Internal management within the Company was loose with ill-defined roles and responsibilities resulting in considerable cross over of instructions from management to different sections of the work force.

PROGRAMME ACTIONS

The Compass South consultant modelled out the increase in business required to achieve the directors’ expectations for profits and identified key actions required to achieve those profits. The agreed actions taken were to:

• Amalgamate the two separate businesses under the same management team and location and start to run them as a single larger business.
• Draw up and implement a management structure that saw each member of the management team with separate responsibilities for different facets of the business, with the Managing Director having an oversight role across the entire business.
• Re-organise the NZ wide distribution system through a network of retail level distributors.
• Contract Prime Dealers to achieve sales targets with appropriate incentives in place.
• Move into the Australian market in an effort to access more sales using an Australian agent.
• Investigate importing some components for equipment from overseas.
• Implement a production management system and a linked quality control system.

SUCCESSFUL OUTCOMES

• Amalgamating the two businesses in one location produced significant efficiencies and cost savings.
• The revised management structure saw cross department interference reduced to a minimum resulting in significant improvements to operational efficiency.
• Re-organising the distribution system provided greater dealer commitment and a resultant increase in sales.
• Importing some componentry from overseas reduced direct costs.
• The new production management and quality control systems improved output from the factory whilst also minimising rework and improving reliability of equipment sold. They provided the Company with a significant increase in productivity for minimal additional labour cost.

The overall impact of working with Compass South was that at the end of two years, Sales had increased by 50% and the business was on track to meet the owners profit growth targets.