The following case studies give a sense of the ways in which we have helped businesses break free from a log jam of resource or information scarcity, and move into periods of restored profitability and/or new growth and expansion. The right advisor knows what questions to ask and how to interpret the answers in a way that is productive and relevant to your business.
Problem: Commercial bakery with significant U.S. and international sales, was delivering unsatisfactory profit margins in the low single digits, and was unable to identify the root causes.
Solution:By reconstructing past pricing and ingredient cost trends, we established that the primary problem was that company pricing had not kept up with the cost increases for key ingredients. We suggested a “catch-up” price increase which closed much of the profitability gap, and requested that the supply chain manager start forecasting future increases in ingredient costs, and communicate those clearly to the CFO/CEO so they could be taken into consideration when deciding on planned price increases going forward. Analyses of operations helped us identify other contributors to low profitability including: short running items, fluctuating weekly production volume and equipment breakdowns which lead to lost production and sales. Our recommendation for remedying these problems was to eliminate some of the short run items, be more disciplined about sticking to a maximum production target per week, and more closely monitor equipment reliability and maintenance schedules. In addition, we helped the management team develop a metrics report focused on these areas – which they began reviewing weekly.
Problem: Food manufacturer did not know which products cost the most, and which produced the most revenue – and therefore could not identify which products were enhancing profitability and which were holding him back. Manufacturer also lacked a system for identifying when to initiate price increases.
Solution: We worked closely with this client to build an accurate and easy-to-use model of costs and profitability for at least one representative product from each product family. This provided a basis for client to take action and raise prices for some products while delisting others where the gap between needed and actual pricing was insurmountable. We trained client on using this model on a continuing basis to inform future decision making as prices for his key commodity continue to be volatile.
Problem: Successful foreign language elementary school was looking to expand their unique pre-school business to additional locations but had not been able to model the financial consequences and investment needed to do so. They had accurate monthly and quarterly financial statements for their existing operation.
Solution: We carefully studies client’s existing financial statements in order to be able to build an accurate and easy-to-use model to project the results from expanding into additional locations. Client funded the opening of their next location with greater confidence about the financial requirements, given the favorable cash flow aspects of school operations, and the inherent uncertainty concerning first year site utilization.
Problem: Manufacturer had extremely accurate monthly p&l statements, but wanted a deeper understanding of profitability for new, recycled and remanufactured pallets, as distinct product lines, to inform product pricing decisions and identify where to set salesman commissions.
Solution: We worked collaboratively with client to break variable and fixed manufacturing costs back to the three lines of pallets, quickly coming up with the gross profit figures that underscored the differentials for new, recycled and remanufactured pallets. Client finalized the appropriate commission structure of a newly hired salesman, assuring they were focused on the most profitable business line, on the very day our final report was reviewed.
Update: Client brought us back some years later for a second assignment where we developed and implemented a weekly scorecard report and also a shift from exclusive made-to-order pallet production to made-to-stock for some of their leading selling items. Together, these two steps lead to improved sales, profits and customer delivery times.
Problem: Successful advertising agency did not know which types of clients and types of services were yielding the highest profit margins for the agency.
Solution: We benchmarked the agency’s profitability against industry averages analyzed billing practices, and staff utilization by type of service provided. This analysis revealed that the agency was charging below market rates, especially for work to be accomplished on retainer. We recommended that the directors bill a higher percentage of their time to maximize revenue, and look for ways to increase revenue by charging higher fees for services. We also identified that the agency was sometimes expanding staff prematurely, and as such we recommended revenue growth “trigger points” as a prerequisite for new hiring. All of these recommendations were implemented by client, leading to strong profit growth in the following year.
Problem: Private equity firm was in the process of acquiring a local family-owned cheese and yogurt manufacturer (which had strong local market share) but the firm was concerned that there was not a credible plan for growth of the dairy business.
Solution: We acquired syndicated market research and did financial analysis of strategic alternatives to vet and recommend a viable growth plan. We gathered data to help us to understand the market opportunity, trends and competition in the dairy products firms’ existing and outlying markets. We used store checks to validate the research conclusions and give us a deeper understanding of the opportunity. Finally, we outlined recommended strategic alternatives and assigned dollar values to each giving the private equity firm a roadmap to enhance the value of their soon-to-be-completed acquisition.
Problem: Device manufacturer designed and was ready to go-to-market with an AAC device that was markedly superior to what was then on the market, but needed approximately $1 million 3rd party investment to fund his product launch.
Solution: We helped client complete his investor package by creating a financial model which outlined and substantiated the required investor capital and potential investor returns. In addition to the financial modeling, we researched the prevalence of the medical conditions (e.g., cerebral palsy, autism, ALS) for which the AAC devices are used and intensively researched the existing competition. This data validated revenue forecasts, and provided greater confidence how and why the market leader was vulnerable. Client subsequently raised the needed funds and successfully launched his business, profiting from his invention.
David@RudofskyAssociates.com
Phone: 1-914-216-3566
Based in New York City. Doing business nationally.
