Improvements for a company with different business verticals

Cash crunch in an engineering company with different verticals with broad idea about the cause but no details to substantiate

Challenge

• A engineering company with different verticals was facing a Cash flow issue due to one of the verticals, leading to delayed collection
• The organisation had common pool of funds for all the verticals and no record of which vertical contributing to how much of Working capital requirement
• Other High revenue contributing verticals were facing trouble in paying the vendors on time and hence affecting their growth

How we helped

• Vertical-wise Profitability for the last 3 years was analysed including Sales, COGS, Gross profit margins, Fixed costs, fair method of Head office overhead allocations and net margins to get an idea of performance of all the verticals
• Break-even point and Margin of Safety for each vertical was calculated
• Working capital for each vertical for the past 3 years was analysed and correlated with their Sales and normal Working capital cycle
• We were able to point out excessive Working capital blocked in the subject vertical without commensurate returns on the same
• We recommended creating separate bank accounts for each of their major verticals to isolate the fund flow of each vertical. A clear process was defined for draw down in the funds and for funding of common expenses.
• We also helped identify the cost inefficiencies, especially higher investment in infrastructure and manpower not commensurate with the Sales, which was also impacting the profitability of the vertical
• We recommended various alternative course of actions across multiple scenarios for improving the cost efficiency
• Clear KPIs were defined for each vertical further drilled down to respective departments and individuals for effective monitoring of the performance

Benefits

• With clear responsibility on vertical heads for cashflow management, the profitable and high growth potential verticals were insulated from other slow growing verticals enabling them realise their growth potential
• Clear definition of KPIs and monitoring mechanism helped management transition the company into a performance driven organisation
• Cost rationalisation was brought about leading to improved profitability