Challenge
When we engaged with a distribution client recently, the business was facing a precarious financial situation. Rising material and freight costs were eroding profitability, Their lender had raised serious concerns, requiring capital contributions from ownership and closely monitoring their line of credit, which was extended in six-month increments. At the outset, there was significant uncertainty about whether the company could weather the storm. The risk of a forced sale loomed large.
Financially, the company struggled with delayed and inaccurate financial reporting, which left leadership without a clear picture of their financial health.
Solution
We approached the engagement with urgency, focusing on immediate stabilization and building a foundation for long-term financial health:
1. Immediate Stabilization
- Addressed critical tax preparation issues to meet lender requirements and provide clarity to leadership.
- Streamlined the month-end close process, reducing it from 10–15 days to just 2–3 days, enabling timely and accurate reporting.
2. Strategic Financial Initiatives
- Conducted a detailed historical profitability analysis and reviewed it with the client, allowing us to clearly define the company’s key performance indicators that would guide their turnaround.
- Introduced a KPI dashboard to track targets and results over a rolling 13-month period.
- Held monthly financial review meetings to ensure accountability, analyze trends, and prioritize actions, to improve operational performance.
3. Cost Optimization
- Initiated a freight RFP process and implemented a competing broker strategy, resulting in significant reductions in freight expenses.
- Recommended hiring a purchasing manager to address rising material costs, leading to ongoing rfp efforts and steady cost reductions.
4. Financial Department Reorganization
- Transitioned the controller, who was not in the right role, to another department, enabling the finance team to function more effectively.
- Developed the staff accountant’s skills, empowering her to take on greater responsibilities and refine the month-end close process.
- Reduced overall finance department costs while improving the quality and timeliness of financial reporting.
Results
Over the next 12 months, the company’s transformation was remarkable:
- For the first time, leadership had clarity on what success looked like, and used those KPIs to create measurable goals moving forward.
- Stabilized Lender Relationships: Improved financial visibility and operational efficiency reassured the lender, reducing the risk of a forced sale.
- Cost Savings: Freight and material expenses steadily decreased due to strategic procurement efforts.
- Operational Efficiency: Month-end close times were reduced, improving both accuracy and timeliness while lowering departmental costs.
- Team Empowerment: The finance team operated more effectively, with improved clarity and accountability.
- Record Profitability: By 2024, the company achieved its best financial performance to date, generating $1.5M in EBITDA.
Key Takeaways
This case exemplifies how businesses on the brink of financial failure can recover and thrive with strategic financial management. Through trust-building, hard conversations, team realignment, and a focus on both immediate and long-term goals, we transformed a struggling distribution company into a success story.
