An All-Too-Common Case Study – Tell-Tale Symptoms of a Poorly Performing Company

Although every company has its unique set of issues, I’ve found that many have similar financial pain points and struggles in common. I’d like to share an account of my journey with one client to uncover the source of those pain points – and how we found and developed the right solution. Perhaps you’ll relate to their situation and see a solution on the horizon for your own company.

The Challenge

This particular manufacturer and distributor of specialty lighting products had more than ten years in business, serving both national and international customers. The combined experience of the owners totaled more than 50 years in an industry in which the company was a leader, with an excellent reputation.

To set the scene, the company was certainly growing – year over year. In an effort to maintain the pace of that growth, the owners were keenly focused on sales, not financials. Without that necessary attention, the situation had evolved to the point that the owners were unable to accurately determine where they stood financially, and operations were suffering. There were multiple tell-tale symptoms:

  • Bookkeeping was one year behind and of very poor quality.
  • It was impossible to produce legitimate monthly financial statements.
  • The owners were unable to determine whether they were making a profit.
  • Cash flow was always a challenge.
  • Employees did not have defined job responsibilities.
  • General ledger inventory levels did not agree with the sub-ledger.
  • Inventory being out of stock had become a regular occurrence.

The Process

We got right to work and dove into phase 1 of my Financial Intelligence Framework program which involved a deep dive into the practices and procedures of the company, financial and otherwise, to discover and reveal underlying issues. This involved not only examination of financial and operational documents but interviews with the owners and employees. Once information was gathered, a Gap Analysis of the business was prepared, which compared fundamental financial business practices with theirs, and revealed that elements of the accounting infrastructure were missing. Without a CFO, this company had blindly relied on their bookkeeper and tax CPA to get their financial house in order but neither had the experience, skills, or desire to make that happen.

The Solution

To close the gaps, fundamental best practices needed to be established in all areas. The following steps were taken to create a solid financial framework:

  • A new bookkeeper was hired to get the books caught up.
  • Processes for all accounting functions were developed and documented.
  • Training was provided for those involved with bookkeeping and accounting.
  • The chart of accounts was totally reworked to generate meaningful financials.
  • A monthly schedule for presentation of financials, with analyses and reports, was established.
  • Budgeting and cash flow projections were created and scheduled for quarterly review and revision.
  • Physical inventory was performed, and the inventory sub-ledger was corrected.
  • Inventory re-order points were established for critical inventory items.

Throughout this process the owners were intensely involved as were various employees, who cooperated and worked together to implement the new processes and procedures that resulted from our extensive assessment and the recommendations that followed.

The Result

This company is a new version of itself that operates efficiently, effectively, and confidently, based on accurate data that is regularly and readily available. With best practices and fundamental tools in place, the company’s performance and productivity have changed dramatically.

  • The bookkeeper is timely in recording all transactions and completes financial statements by the 10th of each month.
  • Written processes are reviewed and revised periodically.
  • The monthly financial review results in more timely decision-making for improvements.
  • Operating budgets are referred to in making financial decisions.
  • There are few inventory stock-outs.
  • An annual Profit Plan is in place which provides a metric for assessing actual results.
  • The company continues to grow Revenues with increased Net Operating Income.
  • Company valuation has increased.

Using the right tools and applying financial expertise and guidance made it possible for this company to turn itself around, even from such a precarious position. My experience as a former CEO/CFO of my own company is invaluable in understanding the issues business owners are facing as a whole, beyond just the financial challenges.

By creating a detailed roadmap for developing and implementing a solid financial and accounting structure, we were able to work together strategically to put the business on a well-defined path to profitability and growth. I applaud both the owners and employees for their commitment to tackling their challenging situation and their determination to persist until they were headed in a new direction.

Do you see your company reflected in any of the issues this company faced? Even if your issues are to a lesser degree, they are interfering with your ability to optimize operations, performance, productivity, profitability, and growth.

I welcome the opportunity to help you unravel any financial conundrum you may be facing. It is never too soon to address your issues – before you find yourself feeling out of control. Get in touch to schedule a complimentary discussion of your situation and how we might work together.

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Rick Arthur is a CFO whose expertise is built on Financial Intelligence and 35 years in senior financial roles. Coupled with a CEO’s perspective and the experience of building his own $20 million company, he brings a unique depth of insight into business from the top down. Wired to get to know people, Rick works hand-in-hand with business owners of intentional, growth-oriented companies, solidifying relationships as a trusted advisor and confidant to his clients. He leverages his experience to help business owners gain traction and stay laser-focused on the company’s vision, cash flow, and profitability – all while creating big picture solutions for strategic planning, growth and sustainable success.