While businesses should be able to manage and navigate fluctuations in sales and profitability, sometimes they’re faced with a much larger challenge than a temporary down period, like the suffocating grip of inflation. That’s the challenge our client—a leading equipment manufacturer in the automotive industry in Ontario—was facing after they expanded operations into Mexico and won significant new business. While they had good operations, good customers, and had taken on new work, rising costs resulted in declining profits. They came to us needing help to find the way forward.
Performed an assessment of their business by reviewing their operation, accounting controls, financial results, and profitability, which ultimately concluded that their business was operating well and that their pricing terms were below market
Prepared a turnaround plan and assisted with negotiations between our client, their stakeholders, and their lender bank to develop consensus
Recommended implementing revised pricing with a new financial model that successfully restored profitability
Our client had financed their expansion into Mexico and new sales with bank loans, but rising inflation increased their costs and the cost of borrowing, which resulted in tighter margins and eventually, declining profits. As this continued, they experienced negative earnings and their loans were at risk of default with their bank. When they came to us for help, we knew there was a financial challenge at play and wanted to gain a full understanding of exactly what they were dealing with. During our investigation, we helped assess their operations by reviewing their accounting controls, financial results, and profitability. Through our analysis, we determined that their Mexico operations were working well, their new sales provided opportunities, their management and customer base were strong, that they needed to increase their pricing—a difficult feat since OEM customers have a significant amount of pricing control in the automotive business. Our team prepared a strategic turnaround plan with a new financial model that demonstrated a pricing adjustment was the only solution. We supported communications with our clients’ stakeholders in outlining the plan which received their support because of our transparent approach. The price increases were successful and, in some cases, retroactive, providing an immediate return to profitability. Not only was a Canadian manufacturer and hundreds of jobs saved, but the Mexican division of the business also continues to grow rapidly
Being prepared for uncertainty—even with future projections—is difficult as we can’t perfectly predict what will happen, but it’s possible to get through. With the right advice, coupled with a sound strategy approved by all stakeholders involved, our client was able to endure the rough waters of inflation’s rising costs and tight margins. We were also able to help them strengthen their relationship with their lender and see them continue their
successful path forward.
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