How commercial plumbers increased efficiency, tripled turnover and paid for a Gen Mgr to enable early retirement…
Situation
One commercial plumbing business we worked with in the construction industry had become a victim of their own success. They had built a successful business with a turnover of 1.5 million and growing; however, they were held back by a shortage of Working Capital. The money they needed to pay suppliers and keep growing the business was tied up in future customer invoice payments.
Even though they were constantly battling this cash gap, the business had still grown 20% in the last 12 months.
Problems
It was a vicious cycle – more work meant more expenditure now and more payments later. This put even more pressure on their Working Capital. To manage the problem, they were forced to slow down payments to suppliers. They started getting an industry reputation as “slow payers” – and some of their suppliers placed them on ‘Stopped Credit’.
Being on Stopped Credit meant that when a worker arrived at the suppliers to get the materials required to complete a given job, they couldn’t get the materials they needed. That meant that the workers would have to wait for the office to organise payment to the supplier. This could take hours, and had real productivity impacts that cost the company significant money while the worker waited for materials.
It also meant that sometimes the job was not completed on time. Not only was this bad for their reputation, in some cases, contract penalties were also applied, costing them even more money.
They desperately needed to increase their Working Capital and liquidity. However to obtain assistance from their bank they would have to put the family home on the line as security.
Solution
Fortunately Martin Cattach, from Finance for Business, was referred to the directors to help them find a solution.
After a detailed analysis of the Company’s position, Martin was able to organise an invoice finance facility for $500,000.00 (later increased to $1,000,000.00) – a finance facility that only required the business invoices as security, protecting the family home.
Results
The business no longer had working capital held up in Debtors (waiting for payment). They could not only pay their suppliers on time, they could even negotiate early settlement discounts.
Their workforce productivity increased, as there were no supplier delays, and this meant more jobs completed on time – or even early. Their business reputation was not only restored but strengthened as a result.
With the new freedom of adequate working capital, the directors could focus on growing the business. With quality financial advice and increased income, they increased the quality of their workforce, improved their operating systems, and continued to grow. Within three years the turnover had tripled.
As an extra benefit, because they were able to grow the business without constant cash flow emergencies, the directors were able to hire a general manager. They are making lifestyle changes and are looking at selling the business in a few years so they can take early retirement.
