An accounting firm’s 2 owners (75% and 25%) were locked in major dispute about the direction their business should be taking and how they were currently operating. The 75% owner decided to buy the 25% owner out as this was the only way they could see a solution. The business was a $3M p/a revenue business, with 29 employees, a profit of $500k and a cash balance of NEGATIVE $370k (using their $400K overdraft to survive). After 2 failed acquisitions to aid their growth in the past 2 years, the business was on its knees financially!
The remaining owner asked for some very hard “coaching” from me and said “he would now do 100% of what I said when I said to do it” (this is how desperate he got). We immediately put a weekly cash flow into place and forecasted it 6 months in advance. He decided to turn the weekly cash flow document I presented him into a daily cash flow format. We had the Operations Manager implement it and update it daily and it was sent to the owner and I every Monday morning for review.
The cashflow revealed exactly which areas in the business we needed to focus on and we decided on 5 strategies to implement over a period of 5 months;
- Changed the trading terms to 7 days from 30 days
- Implemented invoice financing for people who needed financial support to pay the bills
- We pulled in all overdue fees (93%) immediately over 30 days old
- We had some clients pay their money in advance
- The team were made aware of the situation and asked to position/reposition the trading terms with clients and did not commence work until payment option was agreed.
Within 5 months, the owner has collected an extra $250k he never had before and is now 3 months from clearing the overdraft completely and trading solely on operational cashflow. The owner is in the process of shutting down their second office as it is clear NOW that it is losing between $10-15k per month, with people and assets moving back into the mother ship office. The business is now ahead of budget and making an extra 27% profit YTD with more growth expected.