Case studies

These case studies illustrate the value that Paul has added to businesses that he has worked with.

The right management information to make the right decisions

How better management information prevented a company closing a profitable business by mistake!

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How a focus on quality reduced working capital                                                     

How a group reduced working capital by 11% and freed up £16m of cash by focusing on quality.

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Acquisition and turnaround of a loss-making business                                     

How a loss of £0.5m was eliminated with better financial and commercial management.

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The right management information to make the right decisions

Paul worked with a company that was operating in a booming market.  Its sales were growing, but the company was struggling to make a profit.  The company had two product lines, one with a high price and one with a low price, and “everyone knew” that the high-price product was profitable, and the low-price product was loss making.  Management were proposing to close the low-price product line to improve profitability.  Paul asked to see the figures for the profitability of the different products and discovered that the company had no management information on which to base this important decision.

Paul found that the company’s systems contained a lot of useful data about revenues and costs in different parts of the business, but it had not been organised into usable management information.   Paul prepared new management accounts for the company, splitting revenues and costs between the product lines.  This showed that the high-price product was also a very high-cost product.  In fact, the high-price product was loss making and it was the low-price product that was profitable.  Thanks to having the right management information, the company avoided making the wrong decision and closing its profitable product line by mistake.

Based on the new management accounts, Paul was able to explain where the high cost areas were in the business.  He then worked with the company management to identify ways to reduce costs.  A restructuring programme was agreed, and some activities were outsourced.  As a result of making decisions based on the right management information, the company now had two profitable product lines.

How a focus on quality reduced working capital.

Paul was asked to manage a project for a group of companies that needed to improve their working capital management and free up cash to reduce their borrowings.  Following the principle that “what gets measured gets done”, the first thing that Paul did was to set up KPIs for working capital, to identify areas for improvement and to track progress.  KPI’s were created for:

  • Receivables Days
  • Overdue Receivables
  • Inventory turns
  • Slow moving inventory
  • Total Working Capital turns

Paul worked with both financial and operational managers in companies across the group to identify opportunities to improve working capital such as:

  • Improving credit control procedures
  • Reviewing and renegotiating payment terms
  • Using, selling or scrapping slow moving inventory
  • Reviewing minimum order quantities, batch sizes, and requesting just in time deliveries and consignment stock.

However, many managers complained that they were already trying these techniques and that they could not reduce working capital further.

Paul therefore had to investigate other reasons why working capital in the group was too high.  As the project progressed, he realised that quality problems were also contributing to excess working capital.  Product failures and rework in production were increasing the amount of material tied up in inventory.  Errors in installation were increasing project work-in-progress and preventing customer sign-off on projects and so delaying payment.  Poor scheduling and planning meant that businesses were holding extra safety stock to cover for unforeseen problems.  Paul presented these findings to the group’s senior management, and in parallel with the traditional actions to reduce working capital the group started to focus more on a “right first time” approach to managing the business.  As a result, working capital was reduced by 11%, freeing up £16m of cash.  Lower costs of rework also increased margins, and lower borrowings saved interest charges, increasing profits as well as reducing working capital.

Acquisition and turnaround of loss-making business

Paul was asked to undertake commercial financial due diligence on an installation and contracting business.  The company was loss making and Paul discovered that the company had been growing sales by taking on new contracts at unrealistically low prices, and that the company also had poor financial and management control over execution of the contracts.  Paul analysed the financial position of the company’s contracts and justified a substantial reduction in the purchase price for the acquisition, due to expected future losses on the contracts already signed.  His analysis showed that with the right changes to managing its contracts, the business could be profitable in future.

Following the acquisition, Paul worked with the company’s management to improve financial performance.  He agreed new contract pricing rules with higher minimum margins so that the company did not bid too low for new contracts.  He also proposed recruitment of a new contracts manager and new processes to authorise and control any changes to the scope of work after the contracts had started (contract variations).  This ensured that the company got well paid for changes requested by customers, where previously the company had been absorbing costs and losing money.  As a result of these changes the company reduced sales from £5m to £3m per annum and went from a loss of £0.5m to a profit of £0.25m.