Success Stories

Distributor

A well-established, successful distribution company had never reported a loss on an average of $50 million in annual sales. As with many other companies, the economic crisis impacted its industry, and within a few months, sales were down 40%, resulting in $200,000 of negative monthly cash flows from operations. Management had not retained earnings in the company, but during this time, made a decision to try and ride out the crisis until things returned to normal, using the availability on its line of credit with its bank. Warren Averett was engaged when the line of credit was over-advanced against the borrowing base and trade payables were delinquent. Warren Averett quickly assisted the company’s management in taking the following steps:

  • Production of accurate internal financial statements that were used to identify excess costs and expenses
  • Development of a plan to maximize operating cash flows that included product line profitability analysis, bulk inventory sales and returns to manufacturers, reductions in head count and salary reductions, return of equipment being leased, and closure of locations, among other remedial actions
  • Preparation of a projection indicating expected future cash flows from operations considering these remedial actions
  • Obtaining tax refunds using net-operating loss carrybacks
  • Assistance with negotiations with existing creditors to provide time for remedial actions to take effect
  • Weekly monitoring of cash flow and key metrics, as well as periodic budget versus actual reporting

Within three months of taking the remedial actions, the company was again experiencing positive cash flows from operations. The company was then able to convert much of its slow-moving inventory into cash that was used to eliminate the over-advanced position on the line of credit. Within nine months, the company refinanced the line of credit and had stabilized its situation with trade creditors and now operates profitably as a smaller but more efficient company.

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