The company is experiencing “growing pains”.  Patrick has worked to delegate some of his responsibilities without complete success.  He is the “face” of the company for most of the general contractor Customers and freely admits he has not had enough time recently to cultivate relationships.  Both Mahders are working long hours at the company losing precious time with their teenage kids. 

 

In addition to the need to hire 5 personnel immediately to reduce expected overtime cost, the company financially is experiencing a working capital squeeze as a result of the growth.  Gross profits have remained remarkably consistent at around 25% for the past three years.  (This is low for a company performing in this industry at this level of quality and service.)  However, the growth is continuing to demand more working capital as the company’s position as a subcontractor generally creates a delay in payment versus job expense.  Current Days Sales Outstanding is over 70.  The Mahders would like to begin reducing or holding the line on debt but they are undercapitalized.

 

The production staff of fifteen is generally working 40-50 hours per week.  It is deemed unlikely that any of the overtime can be reduced as it is a function of some of the delivery processes.  Any increase in production beyond that of the current staff’s capability requires increasing lead time or hiring incremental staff.  Unlike most other small businesses, the Mahders have spent energy on the staff recruiting function and they hire all employees.  They have an effective staffing process and can up staff in a matter of 2 – 3 weeks.

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The use of financial data in the company is sub-standard.  The Mahder’s hold the financial information very close.  Ruth Mahder is extremely frustrated; and, really for no good reason as she has never received formal technical training in finance or accounting and thus the financial decision-making is strained due to their collective lack of training.  At the current stage of growth this is becoming an impairment to better performance as activity management driving at improvement in gross profit is difficult without better and more timely info, i.e. gross profits expectations for various bids and activities.  In addition, current financial statements are substandard.  The Mahders are having difficulty securing more traditional (cheaper) debt with the current financials.  The monthly close is arduous.  Moreover, financial planning is weak in this Client, especially for use of working capital in the short term – cash management – and longer term – planning budgets - and financial management.  The Line of Credit ($50,000) is remarkably small for an operation of this type and size.

 

Analysis:

    

We worked with the Mahders in our Initial Review and determined together that we could help them in the areas marked.  Our service first educated the Mahders as to the costs of their actions – the delays in processing A/R for example and the impact of that even to obtaining the Line of Credit for example – and then we looked at their time and where they were investing their very valuable time in very low value activities; and, even leaving money on the table with Customers due to their lack of controls.

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Mahders' Action Emphasis Summary: