How Platinum’s restructuring plan regained business viability and profitability
Situation: A parts distributor selling to retailers, wholesalers and consumers began consistently running below breakeven due to two back-to-back acquisitions, a new facility and too much debt. Negative cash flow of $125,000 per month began to affect vendor relations and resulted in product shortages. Based on a recommendation from a trusted advisor, the owner invited Platinum to assess the situation and get the company back on track.
- The owner had made two smart strategic acquisitions but the payment terms were too aggressive and put severe strain on cash flow.
- The company was in default with two secured creditors and $1.5 million of $2.1 million in payables was seriously past due.
- The creditor community had become frustrated with the lack of communication from the company and the many failed payment plans.
- A move to a new, larger facility came at the same time as the acquisitions, which added to the cash flow drain while the vacant facility’s lease had another year before it expired.
Responses: After an initial assessment, the first step was to analyze the cash breakeven sales levels and liquidation value in order to develop a workout plan. Creating credibility through constant communications with all creditors was critical. After developing a conservative forecast, Platinum negotiated a realistic workout plan with the vendors, stretching payments out over several years for most vendors, which allowed the critical vendors to be paid more quickly.
Platinum renegotiated the facility lease and payment terms with other creditors to increase short-term cash flow. One of the sellers agreed to take back his company, which considerably reduced the notes payable on the balance sheet. The combination of reductions provided breathing room while the company began to build sales back up and restore cash flow.
A 13-week cash flow forecast was implemented to add stricter controls, augmented by weekly review meetings to determine payments outside of the payment plans. Cash flow was enhanced by operational improvements in several areas as well as reductions of several positions.
Finally, Platinum secured new financing to eliminate some of the onerous requirements from original creditors.
Results: The workout agreements and cash flow restructuring were completed in six months. Platinum helped negotiate new bank financing that puts the company in a sound financial position for the future. The company went from a loss of $150,000 with significant cash flow shortages to net income of $1.5 million one year later. The value of the company increased more than seven fold over that one-year period as measured by EBITDA. The owner and the employees are grateful for Platinum’s work on the project. An employee introduced one of the Platinum consultants at a holiday party as “the guy that helped save our company!”