Cash Flow Issues Threaten Bank Line of Credit

Challenge: A long-time manufacturer and distributor of school supplies in Taunton, Mass. had enjoyed many years of strong, consistent revenues. Yet lately, the company was showing annual losses in the mid-six figures – a situation that worried both the company’s owner and the bank that had extended him a significant line of credit.

Background: The owner’s concern was amplified by the fact that the LOC was secured by both the company’s and his own personal assets. As cash flow shrunk, the LOC was exhausted with no plan to pay it down. The bank contacted RBF to review the company’s financial condition and recommend a work out plan.

Solutions: We obtained the company’s cash flow projections and current financial statements, and spoke with management to better understand the company’s cost structure and process flow. Then we reviewed past P&L statements by product line, and studied how these lines performed against competing manufacturers. Our analysis revealed that the company’s cost of manufacturing of lined paper outstripped industry standards by 20%. We recommended that the company close down this line.

Outcome: With our help, the company located a supplier who could produce the same lined-paper product for them but at a lower cost, thus preserving their distribution commitments to customers. We also helped them determine other areas of the business where the displaced manufacturing workers could be utilized.

We also revised the company’s cash flow projections based upon the above changes. The manufacturer worked its way back to profitability, and began paying down its line of credit.

RBF expertise employed:

  • Financial Analysis and Forecasting
  • Lender Relations
  • Vendor Sourcing

Timeframe: 8 weeks

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