Success is a Collection of Problems Solved

Situation

A rapidly growing manufacturing company was outgrowing its Working Capital credit line. The manufacturing product line was growing faster than expected and required more working capital. Projections showed that the company would run out of cash in a few months because of the growth in Accounts Receivable.

Planning and Execution

Reviewed the historical working capital needs of the business. As part of the review built a forecasting model to determine the future cash needs of the business:

· Interviewed the managers to understand why the working capital needs of the business were growing

· Learned that the managers were focusing the growth efforts on high value and high margin products. So, while the sales and profits were growing nicely the growth in A/R consumed too much cash

· Built a Cash Flow model that showed how an increase in A/R provided the collateral for a larger Working Capital credit line and the increased profits supported the debt service

· Negotiated an increased Working Capital line from the company’s lender

Outcome

Increased the Working Capital credit line by 60% allowing the sales and operating managers to focus on growing profitable business:

· Used the access to more bank credit to reduce the old accounts payable and improve vendor relationships.

· Create a monthly financial package and review results with management and bankers.

· Establish an annual budget and 13-week cash flow forecast.

· Built credibility with the company’s bankers by creating a plan and executing to that plan.