Manufacturing Business
“We had no idea the severity of the mess we purchased. Tom was instrumental in getting our books cleaned up, pointing out gaps in our processes & mistakes we were making and helping me teach the team how we will run a profitable business.”
Situation
New owners recently purchased a 75-year-old manufacturing business. The Accounting & Finance department was led by a Controller with a poor attitude and limited knowledge of their ERP platform. The only other internal resource on the Accounting & Finance team had no background in either and started on the shop floor. Leadership had no idea if it was making money and if so on what types of projects.
Approach
We knew the initial step was to immerse ourselves in the daily operations of the business to learn as much about their accounting and finance operations as we possibly could. After 30 days, we let the Controller go, which was a huge relief to the entire team. The next step was to train up the new remaining Accounting & Finance team member to help her understand the “Why” behind her daily activities and what the numbers meant. We drafted a proper month end close process and showed her how to close the month and reconcile cash accounts. We then shifted our focus to the financial statements and chart of accounts. The company’s financials were poorly organized, entirely too long and comprised over 1,350 GL accounts.
Outcomes and Highlights in Initial Twelve Months
Made necessary personnel changes and trained up remaining team members
Showed leadership what their monthly overhead was each month … amount of Gross Profit they needed to generate each month to turn a profit (and how to do it)
Began preparing weekly cash flow forecasts based on AR Collection rates, planned AP Payments & overhead items handled via ACH (payroll, benefits, etc.)
Established KPI dashboards for the company that included both Leading Indicators & Trend Analysis – hired developer to build these with direct data feed from ERP
Consolidated the 1,350 GL accounts to approx. 400 … shrinking both the Balance Sheet & Income Statement from 7+ pages to 2 pages each … creating discernable financial statements
Cleaned out all of the bad data to get to a starting Balance Sheet & Income Statement as of the purchase date (all prior owner data had been loaded into ERP to start financials)
Conducted a physical inventory count
Became the expert on their ERP platform, routinely answering questions for team members that had worked at the company for years
Created Margin Summary template that is used to guide pricing strategy and constructive coaching sessions during weekly Production Meeting when we missed our target on projects
Next Steps
In year two, we have three main focuses:
Move from cash-based accounting to accrual accounting to better match revenue and expenses on a monthly basis
Design variable compensation plans to ensure key managers share in company’s success
Establish healthy accountability throughout the organization