Business owner come to us because their business is not performing the way they expect.  They may be a new company not seeing the growth they originally expected, or a more mature business that has experienced a drop in profitability or looking to make a step change in the size and profitability.

There are usually 1 of 2 outcomes that business owner are looking for

1. A business that provides a higher level of cash flow.  Often this involves a period of recovery if the    business is performing poorly or in danger of collapse.  OR
2. A business that can grow as an asset to be sold at a later date

So we have split the case studies into these two groups.  Have a read and if you find some similarities with your business then contact us and we will set up an initial review meeting free of charge

Case Study 1 - Cabinet maker

Background

The business designs, manufactures and installs custom built high end cabinetry and furniture.  The business has been in operation for 24 years and has grown slowly from a sole operator working from a garage to working from a privately owned 900m² factory employing 12 people.

The business had been profitable for the majority of the time however it had now reached a stage where the business complexities were getting beyond the ability of the business owner to manage.  This resulted in the business owner working 12- 14 hour days 6 days per week and feeling like he was never on top of the business.  Ultimately he has become the bottle neck in the business.

Goals

The owner was looking for a way to continue profitable growth of the business but be able to extract himself from the hour by hour operation of the business while still maintaining control of the business.

Business analysis

A review of the business was done in 2 parts.  The initial review looked at the key elements of the business to determine if it was a viable business the 2^nd part was a detailed review.  The initial analysis revealed the following:

• The business owner did all of the quoting, invoicing, ordering, job layout and programming. Because of time pressures quotes were not being returned on time, jobs were late being installed multiple site visits were required to complete each job as the work was never totally completed
• An anecdotal review of the market indicated that because of the standard of work and loyal client base the limitation in the business was ability to complete the work.
• Discussion with the key people in the organisation they were under skilled but highly motivated to succeed.

The conclusion, agreed with the business owner was there is a viable business and comparison with other cabinet makers indicated that it is feasible to delegate the majority of the tasks.  However it was also agreed that the biggest risk was the ability of the owner to change gis behaviour

The detailed analysis identified the following constraints in the business.

• Poor management and administrative (as opposed to operational) skills of employees in the business.
• No performance measurements or review of financial performance except annually with the accountant leading to an unrealistic view of production costs
• An inability of the business owner to delegate leading to bottle-necking of all jobs through the business owner
• No systems in place, leading to delays in completing the jobs and higher cost through multiple visits and urgent orders
• Overcrowded and poorly laid out workplace adversely effected productivity and safety
• Highly customised product where the owner made all of the decisions about construction methods leading to poor productivity

Actions and outcomes

A “Board of management” consisting of the business owner, his wife and me, was formed to monitor and direct the business.  It must be noted that the strategic changes required in the business are relatively straightforward.  The challenge is to make the behavioural changes, introduce additional resources and systems without having a reduction in quality or profitability

The changes can be broken down into 2 key area; physical changes and behavioural / systemisation changes.  The 2 aspect were done simultaneously to represent an overall cultural changes, with the physical changes often being used as a marker for the behavioural changes

The strategy was:

• Break down the activities of the business owner in to roles by tracking for 2 weeks on an hourly basis each of the activities of the owner

• Group these into “roles” and identify required skills for each role

• Up-skill existing employees as required or recruit resources with the appropriate skills to fill the roles

• Progressively reallocate the roles to others within the business

Physical changes

• A business measurement system was implemented using information from the existing chart of accounts,
• KPI’s, budgets and targets were set employing
• A part time book keeper was employed to take over from the wife of the business owner
• Introduction of new jobbing software and recruitment of planner role new role of planner
• A new office built to provide a physical separation of the business owner from some of the day to day operations
• Upgrade of kitchen and bathroom facilities
• Clean up of work place (refer photos)
• Upgrade dust extraction system to improve housekeeping and provide additional room in the workshop

Behavioural and systemisation changes

• Introduction of range of visual production planning and control system
  • Kanban system for managing stock of consumables
  • Outsourced replacement of minor component
  • Visual planning board
  • Spread sheet based capacity planning program
• Development of a standardised quoting tools to enable non trades person to accurately provide quotes
• Introduction of deposit and payment prior to dispatch to improve cash flow
• Appointment and up-skilling of a workshop team leader to be able to delegate and trade and nontrade worker
• Up skill the business owner to be able to effective delegate task and change his management style from directing to coaching
• Establishment of systems
• Increased pricing based on analysis of actual overhead and production costs
•  

What we achieved

Through implementation of the range of initiates out lined above over 19 months, the business owner was able to go from working 10-12 hours 6 days per week to being involved on a part time basis overseeing the business. 

Sales remained relatively stable during this period and remain limited by the through put capability of the factory.  Profit remained stable despite the increases in overheads due to changes in pricing and improvements in productivity brought about by better planning use of jobbing software.

The business in now poised to put on additional sale staff and the owner continues to manage the business on a part time basis.

References are available upon request 

Case Study 2 - Machinery Fabricator

Background

The business has been in operation for 18 years and has previously made several changes to it's structure and ownership.  At the same time the business moved from selling new and second-hand wood working machinery to the design and manufacture of dust extraction machinery for the wood working industry.

The business had made a loss of $300k over the previous 4 years and was in place to lose and additional $60- $80 k.  The workforce had been stripped from 8 to 2 plus a several unskilled casual factory hands and contract book keeping.  The WIP and sales on the books were minimal.  

The business was struggling having released to the market a product that some structural flaws creating high warrant claims.  Significant work had been done to modify the design and new product had been developed.  However there was uncertainty about how to approach the market with the new product.

Goals

The owner was initially looking to recover the money that had been spent over the pervious 4 years sustained the business.  The aim was to repay the mortgage that had been taken out on his home to cover the business debt within 3 years.

Business analysis

A review of the business was done in 2 parts.  The initial review looked at the key elements of the business to determine if it was a viable business.  The analysis revealed the following:

• Using the financial information that was available to determine the underlying gross margin after all the warranty cost were backed out, I concluded there was there is a viable product,
• An anecdotal review of the market indicated that there was real and growing demand for the product, with significant opportunity for the product to grow in to other markets as well as geographically
• Discussion with the key people in the organisation they were under skilled but highly motivated to succeed.

The conclusion was agreed with the business owner was there is a viable business, provided there was no further product flaws or technical issues associated with the new product design.

The detailed analysis identified the following constrains in the business.

• Lack of clarity around roles, lead to the whole business focusing on finding sales to fill the order book, then stopping the sales process to focusing on production to fill the orders, then realising there were no new orders so move back too focusing on sales.  Hence the cash flow was very peaky.
• No performance measurements and inaccurate financial records. meant determining business performance was done by looking at the bank account
• Due to cash flow constraints components for production were not ordered until a sale was received this lead to long production lead times.  Which when combined with a lack of a production planning, an ad hoc manufacturing process. and use of unskilled casual labour lead to quality problems and extended production lead times
• No marketing material and expenditure on marketing was limited to yellow pages advertising
• Narrow product range limited the solutions that could be provided to the customers

Actions and outcomes

A “Board of management” consisting of the business owner, his wife and me, was formed to monitor and direct the business. The following initial actions were then put into place to restructure the business

• A business measurement system was implemented by creating a new chart of accounts, developing a set of business KPI’s and employing a part time book keeper to replace the contract book keeper
• The roles of sales and production were separated to give a clear accountability for sales and a separate accountability for production to stop the overlap of roles and the constant cycling of sales and production
• A production visual planning process was established that tracked stock of key components.  This meant that sales didn’t commit to timelines or products that were unavailable
• Long lead time items were identified and forecast requirements put in place.  Stock of some of items with a lead time greater than 6 weeks
• Low cost fax marketing campaign was put in place to generate additional leads
• A sales process was developed and simple marketing material was developed.  This was then combined with a sales management system.

After 12 months working with the business it had reached a stable point and was generating annualised sales of $1.5 and profit of $90k per year.  Based on this success the following actions were put in place.

Production management

• The production planning process was further developed to enable lead times to drop from 10 weeks to <1 week
• Kanban systems were developed to visually control stocks of minor components
• Recruitment of additional full time production staff
• Redesign and extension of the range of extraction fans to form a family of fans with similar performance curves

Marketing

•  
  • An upgrade to the web site
  • A shift from yellow pages to online advertising
  • The introduction of email marketing and
  • Attendance at trade shows
  • New marketing material in the form of drawing, spec sheets and informational brochures were developed
  • Educational facilities
  • Masonry
  • Food 
• Market analysis was completed to identify new market sectors and the best way to address of each of the markets.  This resulted in new marketing approaches being taken to increase the number of leads coming in
• The new market sectors in addition to the wood work industry
• At the same time the geographic coverage was widened to include to all of Australia
• A new brand was created to consolidate and update the existing 3 different logos

Product development

• Upgrade to the product range were made by increasing the new larger models to  be able to capture large applications
• New technology was purchased from an overseas supplier to allow the development and commercialisation of a new range of on line cleaning dust extractor
• Introduction of new automation control technology to control units with multiple fans

Installations

• Recruitment of a full time project manager to manage the installation of unit
• Extension of the service offering to include ducting to all machinery and recruitment of a fulltime installations team
• Importation of spiral duct to reduce operational cost

Administration

• Increased admin support to match growing business activities
• Changes to trading terms to require a larger deposit and payment prior to dispatch
• Clear budgets were developed

What we achieved

Through implementation of the range of initiates out lined above the sales were increased by 121% in the first year and an immediate return to profitability.  All additional cash produced by the business was used to pay off debt.

In the second year the sale increased by an additional 86% and however the profitability dropped slightly due to the R&D costs associated with the introduction of new technology and increased product range

The business in now poised to put on additional sale staff and the owner continues to manage the business

References are available upon request 

 

Case Study 3 - Service company

 

Back ground

The company was a startup focussed on providing property management services to Bodies Corporate.  The business had been operating for 6 months with a slow growth rate.  The annual turnover was less than $500k with just the two director working in the business.

Goals

The aim of the 2 business owners right from the start was to building an asset to fund their retirement  The targeted period was 5-6 years to provide a asset of $1,000,000 each.

Business analysis

The initial review looked at the key elements of the business to determine if:

 

• there is a viable product
• a valid market and if the market is growing or declining
• if the key people in the organisation are appropriately skilled and motivated

 

On the basis that we answered yes to these three questions we agreed to work with the business

The analysis identified the key constraints in the business.as

 

• Poor and unstructured marketing
• Poorly set up IT system
• Lack of business controls

 

As this is a body corporate service company significant amounts of monies are held in trust.  However as the IT system chosen was poorly set up and there was a lack of business controls significant amounts of money were either incorrectly allocated to clients or remaining unallocated.  As there was no structured marketing process the business growth was limited. 

What we did

As this was an asset business the decision was taken to continually reinvest the profits into the business to drive continual growth at the cost of short term profit.  It was also important to structure the business so that it wasn't dependant on individuals within the business

As the owners were motivated and experts in their field, but very poor at planning and running the business, we need to up skill the owners and put in place the systems to enable them to monitor and run the business.

We worked with the owners to

 

• source and implement a new IT system,
• clarify their roles and put in place systems to ensue the business wasn't dependant on them
• determine a clear marketing strategy,
• recruit new staff to handle the growth

 

What were the outcomes

After 18 months the business had changed dramatically.  

The new IT system enabled them to accurately manage the funds held in trust and enabled the processing of all payments to be outsourced.  This provided flexibility, simple scale up with growth and no issues around training, staff turnover or holiday coverage

One of the directors chose to leave the business and was bought out by the other director

3 new employees were brought into the business

Business controls were put into place to manage the business on a weekly and monthly

Turnover had increased to 2.8$M

Profit were continually reinvested to drive the growth

The business has an estimated value of $1.2M

We continue to work with this client

 

Case Study 4 – Contract management

The following is an example of a business that I worked with to rescue from bankruptcy and then turn into a profitable, cash flow positive business.

Background

The business is a Melbourne based retail business that had been in operation for more than 15 years.  During this time it has grown from 1 to 10 stores, with a turnover of $16.5M and employing 80+ people.  

In the last 4 year new competitors had entered the market as well as existing competitors were making inroads into what was previously considered the companies traditional customer base.  This growing popularity of the style of product, however it was not being capitalised upon as there was negative sales growth.  At the same time the business had continued to build stock, to the extent that a second warehouse was required.

When combined with poor leadership and people management skills, overlapping accountability, and poor budgeting, the business lost $1.5M in the last 3 years. it was then in survival mode, with the business was being maintained on a day by day basis, by the owner supplementing the cash flow through refinancing / selling his personal properties.

The business was still being run strategically and tactically by the owner, however the skills required to manage the business were different to those required to start the business.  While he remained an excellent entrepreneur, he was a poor manager.

Goal

The business owner was looking to turn the operating performance around to regain ownership of his properties and reduce his involvement in the business.

Business analysis

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