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Workout of Industrial Manufacturer and Distributor: Determining the Viability and Executing a Plan
Situation:
A manufacturer and distributor of industrial products was sustaining heavy losses due to a decline in customer demand within its industry. Poor accounting practices and a lack of financial controls had resulted in inventory being overstated and serious accounts receivable collectibility issues. The company's lender was ready to stop funding which would have forced the company to immediately cease operations and liquidate. A forced liquidation in these circumstances would have left the lender with a significant loss on its loans to the company.
Task:
The company's lender requested that an outside consultant perform a viability analysis to determine the options and recommend a course of action.
Action:
LMG's viability and cash flow analyses indicated that the company possessed enough order backlog to continue to produce product profitably if the lender would advance out-of-formula for a two to three month time frame to jump-start the process. LMG worked alongside with the management team to prioritize production and increase output. LMG helped the company negotiate with suppliers during this process so that they would continue to ship and helped the company with payment plans to numerous secured and unsecured lenders. Accounts receivable and inventory were adjusted and restated to their proper amounts.
Result:
Within three months the company was generating positive cash flow. Within seven months LMG had helped the company find a new lender that provided enhanced liquidity. The new lending environment allowed the Company to launch new product lines that have allowed it to grow significantly and become very profitable for its owners.
