Case Studies

Case Study #1

The Client

This privately held company provides essential services to consumers from 30 locations in the Midwest. They are well established in their various market areas and have a sales force, operations personnel and administrative staff at each location.

We became involved when the 30 business units were being divested by a publicly held company that was just emerging from bankruptcy. The purpose of the divestiture was to resolve certain legal issues. Our client was a private investor with no existing businesses in this industry. His initial plan was to make a short-term investment in the purchase of these operations and to “flip” them to another buyer whom he had lined up. However, after closing the acquisition, he found the deal to resell the operations fell apart and he was left with 30 businesses to run.

The Challenge

As part of the public company, the 30 business locations were supported and managed by the public company’s corporate infrastructure. When they were divested, there was no longer any form of corporate support – no senior management, no corporate staff, no corporate offices, no bank accounts or cash management systems, and no financial systems except for an outdated billing system. Even basic support like telephone services, credit card processing and cell phones had been tied to the parent company’s master accounts. All of these services were immediately disconnected. Likewise, most purchasing was done through corporate arrangements so the divested units had no accounts with suppliers and no credit history of their own.

Since the new owner did not have an existing business that could absorb the 30 operating units, there was virtually no corporate structure to support them at the time the deal closed. They were still doing business as usual but there were no mechanisms in place to manage the cash, pay the bills, calculate sales commissions, deal with personnel matters, etc. It was as if the train had left the station but the engineer and conductor were not on board.

In addition to the myriad of operations issues, there were credit facilities in place and the lenders needed timely monthly financials and year-end audited financial statements. That posed a tough challenge because there were no accounting and financial reporting systems.

Our Job

We were brought in just as the acquisition closed to assume the Chief Financial Officer role with responsibility for all financial and systems functions of the new company. Essentially, we were responsible for creating the corporate infrastructure for the company – people, systems, and facilities. Since there was no corporate staff at the outset, getting personnel on board was the first order of business and we used all available sources to find them. We tapped into our own ranks to fill the head IT position and several key systems development positions. We identified personnel from within the 30 operating units to fill the top accounts receivable and accounts payable positions. And we utilized temp agencies to fill various accounting staff positions until we could make permanent hires.

Over the course of several years, we accomplished the following:

  • Established corporate offices and built the accounting and administrative staff
  • Established a banking relationship and implemented a cash management system and procedures
  • Designed and implemented new business processes and internal controls, and documented the associated procedures
  • Directed a major multi-year project to replace the legacy DOS-based billing and receivable system with an integrated CRM system to manage all sales and customer-related activities. The project involved:
    • Managing a massive data clean-up and data conversion effort.
    • Redesigning the product code structure to reduce the 30,000 legacy system codes to less than 3,000 product codes.
    • Redesigning forms and procedures to take better advantage of the features of the new system.
    • Designing a fully automated revenue and cost accounting sub-system.
    • Developing structured system plans and conducting thorough system testing.
    • Developing comprehensive training programs and conducting user training.
    • Managing all implementation and post-implementation activities.
  • Implemented various state-of-the-art systems, including:
    • An integrated accounting and financial reporting system
    • A custom-developed sales management reporting system
    • Integrated purchasing, inventory and accounts payable systems
    • A fixed asset system
    • A time and attendance system using biometrics to capture employee attendance
  • Installed a high-speed network to support all computing needs
  • Established a systems help desk to support users
  • Supported sales and marketing efforts by:
    • Implementing a new compensation program and guidelines for the sales force
    • Preparing market studies and analyses of competition
    • Developing financial models to support the analysis and creation of new price structures
    • Redesigning order processing procedures (including sales contracts and supporting documents) to improve efficiency, data collection, and internal control
  • Implemented an annual budgeting process
  • Produced financial statements that met lender’s requirements and satisfied outside auditors

The Results

As a result of our work, the investor consummated the sale of the business and earned a very handsome return on his investment.

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