Profit Mentoring

COMPANY

A producer of computer-generated, color-coded labeling systems for magnetic media and file folders (that are used worldwide) wanted to improve the Company’s overall operations and financial performance. The Company in 1974 introduced basic color-coding for media and the system developed is still the most widely used today. 

PROBLEM ENCOUNTERED

The President wanted to improve the Company’s overall operations and financial performance and needed outside objective and constructive assistance to achieve his goals. 

SILVER FOX ADVISOR INVOLVEMENT

Two Silver Fox Advisors evaluated the Company and developed recommendations to improve operating performance and subsequently increase financial profitability. 

CONCLUSIONS

The President of the Company states: 

“We have worked with two Silver Fox Advisors since 1991. They have been most helpful in suggesting solutions to problems in the areas of finance, all phases of marketing, personnel, manufacturing and several other general areas of business. Our satisfaction with their contribution to our success is evidenced by the longevity of our relationship.”

Turnaround and Improving Cash Flow

COMPANY

The Company was a $10 to $13 million per year revenue steel processor that converts flat rolled coils into slit strip and sheets to specific customer requirements. The product line is low added value with raw material a high percentage of revenue. The Company came out of bankruptcy two years ago and was financed by GE Capital as an asset-based lender. The facility is a 100,000 sq. ft. plant for raw material storage and processing equipment. All facilities and equipment are leased. 

PROBLEM ENCOUNTERED

Operating losses were continuing with negative cash flow from the time it was taken out of bankruptcy. However, assets were adequate for loan coverage at the time of the Silver Fox Advisor involvement. Inventory was excessive with little control. Gross margin on sales and the operating expenses indicated that losses would continue unless changes were made. Later in the Silver Fox Advisor’s involvement, GE Capital advised that the account was too small and would no longer provide funding. GE gave the Company a six month notice to pay off the debt. 

SILVER FOX ADVISOR INVOLVEMENT

The first and primary issue was to initiate lower operating expenses; second, to raise the gross margin on sales; and third, to generate positive cash flow. During the first few meetings, management believed that they could work out the situation by increasing sales. Inventory planning was arbitrary and speculative. The Controller was inadequate for the job. Monthly closings took four weeks with little management information. Fixed asset ledgers were incorrect with understated depreciation.

In the first two months, a layoff was made. The Owner took a pay cut. These actions resulted in a 30% reduction in salaries and wages. Other selected expenses were cut. Inventory was worked down. A new Controller was hired and backed up by a CPA Firm, which also performed a year-end review and tax filings. Inventory constraints were imposed using input/output controls. As time progressed, selected prices and gross margins were improved, partly as the result of the economic environment in the steel business.

Following the GE Capital announcement, the Company retained another Silver Fox Advisor who specializes on securing asset-based lenders. The task was difficult but successful; however, at a continuing high borrowing rate. After five months of profits borrowing, costs will be reduced. After one year of Silver Fox Advisor involvement, the results on a comparative first five month’s basis are as follows:

CONCLUSIONS

While the company is not completely out of the “woods” and still has high borrowing costs remaining, it can make a profit. With continuing results, the Company will be bankable and/or saleable within a year.

entrepreneur

Custom Linen Rentals

COMPANY

A 34-year-old wife and mother, working from her home, founded this Company in 2004. Her husband was transferred to Houston having been originally from Connecticut. She could not find catering or rental services to provide original decorative table linen, for her personal use, under $300. An idea was born. With her sewing machine, she decided to try to build a limited inventory of linens to rent for party tables and chairs. By using word of mouth and making cold-call contacts with catering firms and hotels, it became a business. 

PROBLEM ENCOUNTERED

Four years later, the Owner’s business had grown to $700,000 in annual revenues, and they had moved to a 3500+ sq. ft. office/warehouse complex. In 2009, the Owner had “maxed out” and was rushing to find larger space. The Owner did not understand the warehouse market, and did not now specific requirements or size needed for the new facility. This is when a Silver Fox Advisor was called. 

SILVER FOX ADVISOR INVOLVEMENT

The Silver Fox Advisor was engaged in April 2009 and performed a current Company assessment. From data available, a projection was made, concluding with 5-year requirements. It was determined that a minimum of 9,000 sq. ft. to 11,000 sq. ft. of space was required. Because the business was growing fast, one requirement was to increase the capacity and speed of the laundry processing within the existing facility. This was resolved by establishing two 8-hour shifts during peak months of May-June, and November-December. In addition, the development of a product flow chart helped define space allocations for specific job requirements. Available facilities were located nearby and a move was executed in June of 2009. Simultaneously, efforts to project staffing, inventory, and machinery requirements were underway to provide a clear business plan for growth through 2014. 

In September 2009, it was time for the Owner to execute the new business plan without close guidance. By December 2010, the business had grown to $2,000,000 in annualized revenues, with another level of growth to contemplate. The Silver Fox Advisor re-entered to assist with engineering methods to expand into national sales. Plans have now been formulated and are being executed for a 2011 result of $2,500,000. A revised business plan now targets $10,000,000 in 5 years. 

CONCLUSIONS

Building a senior management team is underway. The Silver Fox Advisor’s role during this phase is to be a sounding board by challenging thoughts and processes before action is taken, review the results after action, and provide management training when and where needed. The Silver Fox Advisor was working with an exceptional Owner and Leader. The Silver Fox Advisor played a supporting role and will help make the Owner’s goals achievable.

This Case Study confirms an important lesson: 

A good Mentor must permit the Entrepreneur to fly “solo,” while monitoring his/her progress. The opportunity for the Entrepreneur to learn from his/her mistakes, and then working through those situations, builds self-confidence. 

This company is one example of what an Entrepreneur can do starting with a piece of cloth.

UPCOMING EVENTS
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