Profit Improvement Allows Company to Stay with Bank

Challenge

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Consumer snack food manufacturer and distributor. Engaged as advisor to assess and implement profitability improvements and organizational restructuring. $30 million sales. $7 million debt. EBITDA declined by greater than 100% from $1.2 million to a loss of $(176K). 450 customers (top 50: 80% of sales). 6,600 (1,800 current) SKUs and over 200 employees.

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• Significant margin erosion (exceeding 5%) caused by inaccurate costing data and failure to pass on substantial commodity price increases on a timely basis.
• Conflicted family owner/operator objectives and leadership problems impeded decision making and led to significant organizational issues and unnecessary overhead expenses.
• Productivity in numerous manufacturing areas declined below 50%.
• Bloated SG&A costs of approximately 30% of sales.
• Several years of margin erosion, declining profits, and inadequate cash management practices led to liquidity constraints.

Solution

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• Corrected BOM cost errors, developed new pricing model and negotiated key customer price increases.
• Implemented operational efficiency measurement tool.
• Reorganized customer service, finance and warehouse departments and executed headcount reductions to reduce overhead.
• Improved management of staffing and overtime cost.
• Established cash flow forecasting process to improve liquidity and communicate with the bank.
• Initiated a weekly management meeting and regular informational meetings with the bank to facilitate information flow internally and externally.

Results

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• $1.2 million profit improvement program orchestrated by MorrisAnderson.
• Over 5% margin and profitability enhancements.
• Permanent overhead expense reductions exceeding $250K annually.
• Implemented improved plant controls and processes which increased operating efficiencies by over 30%.
• Negotiated fixed charge ratio, tangible net worth and EBITDA covenant amendment with bank.