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Recently, Gahran & Zibbell Management L.L.C. helped a fast-growing metal manufacturing company successfully rebound from near-disaster. In just one year, our team and the company's leaders achieved a $3 million turnaround of this $40 million business.

Here's how it happened...

Fast Growth Turns into Large Losses

This client actually comprised three metal manufacturing companies under common private ownership. The largest company had $15 million in profitable sales in two product groups. The two smaller companies focused on related manufacturing technologies, generating $3-5 million each.

All three companies were growing significantly. The largest company earned a strong reputation for quality and reliability, and thus gained considerable recognition in its marketplace. Consequently, its business grew by 60% in two years.

Unfortunately, during this ramp-up a major piece of production equipment failed. That led to a series of problems, putting the company into continuous crisis. Eventually, it suffered a $2.5 million loss. The company did manage to survive, but it was significantly weakened financially.

Getting the Turnaround Started

The principal owner and CEO invited G&ZM, to help rebuild the enterprise's competitive and financial strengths.

We began by collecting factory-floor performance data for the largest business and analyzing it from a management perspective. Based on this, the company was able to substantially increase productive use of its equipment. At the same time, we took a "SWAT team" approach to planning and making rapid changeovers on all major equipment.

In just a few months of overtime hours significantly decreased while salable output increased. Changes in set-up procedures yielded less scrap. Minimal capital expenditures for equipment enhanced productivity. Gross margins improved substantially.

Establishing Credibility with the Bank

To keep the turnaround going, the enterprise needed more working capital in order to sell the increased available capacity. This required changing the debt structure

Initially, however, the bank was wary – due to the enterprise's recent history of financial loss, as well as its repeated inability to meet its own profit and cash-flow projections.

G&ZM promptly initiated a comprehensive financial reporting system that overcame these obstacles. We instituted an activity-based approach to re-cast prior cost history. We were able to indentify exactly where the enterprise had made and lost money in all of its businesses. This formed a credible basis for forecasting future profitability.

More Operational and Management Improvements

In the largest of the three companies, one of the major product lines was consistently losing money – or barely breaking even. G&ZM devised a shop floor-friendly way to plan and track production activities. Since then, this business segment has been profitable.

We also introduced a business-planning practice that produced credible financial projections and related them to proposed changes in the debt structure. For example, the company could save 12% on its principal raw material purchases if it had sufficient working capital to buy from a new vendor with more demanding payment terms.

Not Just Recovering, but Thriving

G&ZM led several months of very demanding negotiations to resolve all outstanding issues. The enterprise improved its financial performance and continued to meet its short-term forecasts. By Year 2, the enterprise exceeded its financial projections – and earned a profit of $500,000.

Bottom Line: The determination and expertise of the executives and managers, combined with G&ZM's know-how, yielded a $3 million turnaround of this $40 million business in just one year.

...Next, we helped negotiate an $11 million refinancing to increase working capital. In addition, the bank granted a $2 million loan to purchase the land and building for the largest business.

Even More Progress

By Year 3, this collective enterprise had exceeded its projections – despite a strike lasting several weeks at a major customer.

The largest business in the enterprise also received significant industry certification for its quality practices. The two smaller companies are implementing those same standards.

G&ZM continued to team with this enterprise. We:

• Developed and implemented a new procedure for evaluating and approving capital appropriations.

• Introduced a flexible manufacturing budget. The objective: Reducing indirect manufacturing costs by $500,000 in Year 3.

• Initiated and implemented marketing and sales strategies for the two smaller businesses.

• Pursued joint ventures that allow total gross margins to be shared prosperously.

• Helped evaluate an opportunity to acquire a firm with complementary manufacturing technology.

• Upgraded the management structure in order to better capitalize on the strengths of today's and tomorrow's key people at the enterprise.

...This is only one example of the many successful turnarounds engineered by Gahran & Zibbell Management L.L.C. Ask us about what we can do for your business.

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