Archived Published Articles

Anatomy of an Assessment: Preparation for Growth

CRP was recently engaged by the shareholders of a manufacturer of seasonal outdoor consumer products to perform an assessment. Rapid growth of the company’s business through new channels was driving the need for strategic evaluation of business processes and capital requirements.

The company had two primary distribution channels: independent distributors who sold and built customized installations and big box retailers that marketed standardized, smaller and less costly versions. The business has grown from a startup over ten years and recently entered the mass market by landing supply contracts at Wal-Mart and Home Depot with the potential to double top line revenues.

The Shareholder group wanted to make certain the growth would be profitable: more specifically, that the company’s systems and processes could handle the growth, that the working capital revolver would be sufficient, and that the management team would have the skill set to navigate this growth. The assessment had two parallel tracks: a financial forecasting effort combined with an operational assessment.

For the financial analysis, CRP created a 13-week cash flow and an integrated income statement, balance sheet and cash flow model forecasting the 2005 annual performance along with proforma forecasts for 2006 and 2007. The near-term cash flow model was important as the company was building inventory rapidly in preparation for spring shipments. There were warning signs that the company could be heading for a cash crunch as it built inventory and AR with the spring revenue increase.

The operational assessment focused on production costs and capacities and the potential for outsourcing certain processes, including sourcing components from China. CRP used their expertise in lean manufacturing methods to determine if production capacities could be increased, thus enabling a smaller build of finished goods inventory in advance of the seasonal demand curve. This capability – understanding how to lever operational improvements for a positive impact to the balance sheet – is a core element and differentiator of CRP’s advisory skill set.

The operational assessment also reviewed the logistics and IT capabilities necessary for success supplying to Wal-Mart and Home Depot. These retailers have led the market in requiring suppliers to conform to their needs for automation and consistent information flow. CRP assessed the EDI and other IT capabilities of the company to ensure there was sufficient technology infrastructure to support a doubling of revenue this year.