OVERVIEW
- Revenue: $95,000,000
- General Description: Capital Equipment Manufacturer
- Geographic Location: Global Operations
- Markets Served: Consumer Packaged Goods (CPG)
THE SITUATION
Our private equity-owned client (the “Company”) has been a leader in the plastics industry for over 75 years. A short time after the acquisition, the Company found itself in violation of its covenants and under forbearance with its bank. The Company was required to hire a financial advisor to assist in providing the bank with various financial benchmarks.
The Company was in violation of its Fixed Charge Coverage Ratio (FCCR) and Leverage Ratio outlined in its credit agreement. These covenant violations stemmed from a combination of situations, including cyclical market conditions and a failed acquisition integration. The Company faced several challenges, including forecasting cash receipts from customers based on progress billings tied to milestone attainment. The situation was further complicated by headwinds affecting the Company’s customers’ business and disruptions in its global supply chain.
THE SOLUTION
JACO Advisory Group was engaged to implement a thirteen (13) week cash flow forecast to include actual versus forecast results and variance reporting on any significant differences between actual and forecast budget entries. JACO’s team also provided an analysis of revenue and spending patterns, which provided greater insights to the company’s management for decision-making and cost containment. Additionally, JACO provided general advisory support as required and timely written reports to the Company and its senior lender.
THE OUTCOME
The Company has seamlessly integrated the 13-week cash flow forecast model into its daily operations as a “best practice.” This tool is now utilized not only to meet lender requirements but also as a valuable asset for management.
Insights gained from the cash forecast and its accompanying analysis have allowed the Company to focus on material spending linked to increased machine sales. This key measurable, ensures that spending remains in check, safeguarding minimum liquidity coverage.
By leveraging the cash forecast, the Company continues to derive insights that drive improvements in its SIOP (sales, inventory, operations planning) and optimize the efficient utilization of working capital.
