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Manufacturing Turning Loss to Profit

Manufacturing Turning Loss to Profit

$90,000 loss to $150,000 profit

The problem

Despite using a debt factoring company to free up cash to pay suppliers, our client had serious cashflow issues and over ten months had also made a loss of $90,000. The problems were aggravated by missing out on early payment rebates and seriously affected by suppliers stopping credit due to non-payment of accounts. To cap things off, the bank overdraft was maxed out and the bank would not extend it any further.

Our approach

Accurate diagnosis of the problems is the effective way to prescribe the right cures. Using up to date company financials we analysed the results using our Business Builder tools. The resulting company health check and diagnostic report clearly pointed out the problems.

The issues

The company was in a very serious situation and a number of problems needed addressing.

  • The key issue was that the company was making a loss and the sales couldn’t sustain the overheads.
  • The business model needed amending ASAP to get back into profitability and cashflow positive.
  • We also found that the directors had bought unproductive Fixed Assets on lease.

What we did

  • Given the complexity and range of issues, a number of interventions were required.
  • We analysed the Key Performance Indicators (KPI’s) of the company. It became evident that wages were too high and there was surplus labour. One staff member was made redundant.
  • We negotiated with the landlord for a rent holiday.
  • The creditors were approached to allow arrears to be paid over time and a commitment was made to pay current creditors out on time. Getting support from the creditors allowed the business to stabilise while the changes took effect.
  • A weekly cashflow was implemented to allow a strict regime for the directors to follow and a revised budget was agreed upon.

Results

The results were not achieved overnight but by putting all of the above in place, we were able to return to a profit after payment of directors of $150,000.

The cashflow problems were also addressed with these changes. This allowed the company to invest in more plant and bring about more efficiency in production further lowering costs.

What the client said

“I was on the verge of closing my business down and losing my lifelong savings. But with the careful guidance and assistance of Advisory Accountants, I was able to get my business back into profitability. I am very pleased with the outcome and results.”

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Advisory Accountants provides business accounting and tax advisory services. Wellington, Porirua and NZ wide.

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