Solve Cashflow Crisis, Manage & Support Growth & Strategic Sale
Industry: Construction (Electrical Design and Installation)
Function: Executive and Finance
This “Green Energy” client-owner, a consummate entrepreneur, had built an energy audit/ design/ retrofit business focusing on lighting energy efficiency, with inroads into heating/ ventilation/ air-conditioning (HVAC) and water conservation. The business had struggled through several boom and bust cycles (partially tied to the construction cycle) and had struggled financially with growth. Unfortunately, it had also encountered and entered into a few large and unprofitable projects.
The owner had been both an asset in creating and growing the business–and an impediment to its growth above the $12MM threshold in annual gross revenue. His entrepreneurial and opportunistic characteristics had stimulated the business to move quickly–and had also failed to create business discipline, adequate analysis, and real scenario models. As a result, the business was unprepared for the risk associated with large negative downstream consequences, leading it to founder.
By 2002, the company had exhausted its cash resources and needed to make significant cuts in staffing as the result of a large unprofitable contract and the collapse of Enron (with whom it had completed contracts). In a rescue effort, MMG was brought in to apply the cash flow “jaws of life” to help find and extract the cash resources needed to continue operating and engage in new contracts. We implemented a sophisticated cash flow projection model, installed a cash planning approach, and improved the turn-over rate on construction invoicing and accounts receivable.
These efforts were successful–and MMG initiated work to support business process development/ discipline and enhanced financial analysis as the business began to grow. As a concurrent activity, we advised the client-owner on succession planning and the valuation of the business as he prepared to pursue other future ventures.
As the business grew successfully, the redesigned down-stream benefits of MMG work for the business included:
- Surviving the cash crisis and growing from $8MM to $18MM in revenues during three years of MMG involvement
- Obtaining additional borrowing capacity to fund growth
- Reducing the cycles of both financial accounting and invoicing
- Analyzing the cost structure, implementing budget guidance and supporting policies to better manage costs
- Providing guidance prior to and immediately after a strategic sale-merger, which subsequently led to transitioning the company to a multi-faceted $40MM design-retrofit company.
Based on this work, the owner restored viability to the business, created a stable structure, and implemented business processes that supported future growth. Beyond the strategic sale to the energy-industry partner (named above), the new owners successfully navigated a second merger, taking the overall venture into a NASDAQ-listed energy-services company.