Case Studies

During eight years of continuous improvement since it was founded, the company has refined and enhanced its brushless motors, selling very small volumes to customers, primarily for use in specialty mobile applications driven by batteries. These motors are typically in the 5-15 horsepower range.

Brushless motors have been used in specialty applications for decades. However, recent advances in brushless motor technology have resulted in their ability to deliver quantum cost-performance improvements over conventional motors. Performance improvements are so dramatic that the company considers this as an example of “disruptive technology”.

Brushless motors are starting to be used as replacements for conventional motors in many applications. The company believes this trend will accelerate, and that it will benefit from this trend.

Low volume sales have resulted in continued losses. The company needs to increase sales dramatically. It believes it has been challenged because its technology is ‘disruptive’ and not in the mainstream of current products.

In the past, sales have resulted from direct marketing activities plus responding to web site inquiries from customers who need the high performance motors but cannot find these motors elsewhere. Expected sales for 2004 are $250,000.

To increase sales, the company is looking for partners – distributors, sales reps and manufacturers of mobile applications with a battery source, such as: material handling and aerial lift equipment, hybrid automobiles and trucks, lawn and garden, and construction vehicles, power sports and marine equipment, industrial, commercial and residential applications.

The company has found that attracting the attention of large, established partners who take the company and its products seriously has been a major challenge, and is trying to overcome the resistance. Ideal partners are companies that have a need, now, that can help make the company’s disruptive technology available to the world in high volume applications.

• The product has been enhanced and simplified – This has resulted in the company’s motor more easily being a plug-compatible replacement for a conventional motor, eliminating reengineering.
• Sales have increased – A proactive marketing campaign has been initiated; sales reps and distributors are being added; major sales opportunities are being identified; a relationship pricing program has been implemented; a sales incentive plan has been initiated, a small contract was recently signed with a Fortune 100 company; and the first production contract was signed with another international company.
• Funding has increased – The Company’s business plan was updated; loans were obtained; a strategic partner agreement was signed; a private placement memorandum was prepared and marketed; and discussions with potential “early stage” investors are underway.
• Infrastructure has been improved -The Company’s first annual report was prepared in 2003; the Board of Directors was expanded, and new employees have been added. The supply chain and procurement process are being streamlined, and standard production practices have been established.

This client is a privately held landscape design and installation firm located in suburban Pennsylvania. The company has been in business since 1980 with annualized sales of over $650,000 and 20 employees currently serving commercial contractors and residential customers. The business is run by a husband and wife with the husband handling sales and operations and his wife acting as office manager.

During the last few years the company has focused its operations on landscape design, hardscape, softscape and water features in addition to irrigation systems. It had been involved with golf course installation and maintenance that resulted in abandonment of the other business segments focused on the commercial and residential marketplace which has now been restored.

• Historical losses from bad debts of over $100,000 from general contractors resulting in payroll tax liens for a number of years.
• Bank lender had called the company’s line of credit facility, business term loan and mortgage loan in the aggregate amount of approximately $200,000.
• No capacity on current bank revolving credit facility. Need for additional working capital funds due to business seasonality.
• Operating at negative net cash flow level after debt service but positive EBITDA after owners’ compensation.
• Lack of sales and marketing plan with no clear identity and focus in the marketplace.
• Need to restore sales level of near $1.0 million annually to achieve acceptable profitability target. Historical sales reached a maximum of $1.4 million.
• Need additional operations foremen to direct completion of jobs on schedule and on a cost effective basis.
• Need to control operating expenses overall and particularly in group medical insurance and general insurance areas.

• Analyzed historical operating results to identify available cash flow, documented positive debt service coverage to lenders under various loan alternatives and demonstrated credit worthiness of owners. Prepared comprehensive refinancing proposal and company documentation to present to various lenders.
• Determined that real property value was substantially under-leveraged. Fair Market Value of $356,000 but mortgaged at only $104,000.
• Arranged for a bridge loan in the amount of $90,000 to pay-off all outstanding payroll tax liens to restore credit worthiness of principals (2.0% loan commitment fee and 10.0% annual interest rate)
• Pay-off of all business and personal debts through refinancing of commercial / residential property with a no-documentation 30 year mortgage loan at 7.25% interest. New mortgage of $284,800 at 80% loan to fair market value ratio.
• Arranged for an unsecured personal loan of $20,000 to be utilized in the business to purchase a used truck and for immediate working capital purposes (7 year term at 10.74% annual interest rate).
• Established a new banking relationship with a local lender for cash management purposes and a line of credit facility. Arranged for a home equity line of credit facility of $35,600 at 10% of the loan to fair value of the real property. New local lender allowed $25,000 borrowing immediately and will increase line to 35,600 upon delivery of year-end tax returns and updated credit reports (minimal closing fees and annual interest rate at prime).
• Prepared a 2004 Operating Budget to track performance of the business, cash flow and debt service requirements under new financial structure. Established sales target of $750,000 and EBITDA target of $42,000 for 2004 calendar year on a pro-forma basis after owners’ compensation and debt restructuring. Sales currently trending at 11.5% above prior year level and EBITDA on budget through six months of 2004).
• Developed comprehensive sales and marketing plan for the business including development of a web-site; solicitation of former customers through direct mail campaign; advertising via job site signs, bill-boards and newspapers; and development of a marketing brochure in progress. Clearly identified business niches to pursue for sales development. Developed content for company web-site.
• Assisted in hiring of new operations foreman that allows principal owner to focus primarily on sales activities only.
• Identified cost savings of over $5,000 annually through placement of the group medical plan with a new insurance provider. Review of all other operating expenses currently taking place. Handling personal and business tax compliance through Business Support Plan started in January 2004 that allows for comprehensive decision making of all personal and business financial matters.

The Company was started in 1992 by a husband and wife team. She retired in 2001 reducing internal executive skills, specifically in fiscal management. The operation engaged IIB help mid-2003 due to being confounded by banking procedures, persistent vendors, alarming debt load and no experience in seeking external funding. In addition he was suffering severe signs of depression, including sleeplessness, overwhelming anxiety and agitation.

1. Refinance accumulated debt.
2. Improve staff accountability to procedures and management.
3. Increase sales and pricing.

1. Immediate attempts to refinance the company debt were hampered by many missed payments by the company and the personal credit score of the owning family.
2. The owner’s relationship style has historically centered on paternal generosity and leniency with staff. Communication to establish collaborative goals and review employee performance and provide supervision was a personal struggle that pushed against a disdain for structure and critique.
3. Business controls have been difficult to implement due to inadequate accounting and operational information tracking. Too many essential processes still are performed by hand.

Two EAs have assisted the owner through this difficult growth period. One provides weekly coaching and personal support for developing business disciplines. Another provides his expertise as a CPA and performance analyst, as well as taking over the company accounting services. The performance accounting has provided regular feedback on management behaviors. Understanding the meaning of EBITDA may have taken the owner 1&1/2 years, but now the Company’s EBITDA exceeds industry benchmarks and has supported the total re-financing of the debt load. The owner now has a new attitude to go with his vastly improved cash flow.

“Coaching” has addressed many areas of concern for this man. Some of the business functions that were addressed included supervisory conversations, setting goals and reviewing performance, and revising the cost structure of the business in spite of sales-peoples’ fears of losing all of their customers. We eliminated frequent emotional outbursts in the workplace with a consistent year- long focus. First, the owner stopped shouting. Then we required the staff to do so. Today we have a calm, respectful and productive daily environment. Finally, and “most important” to the client, is the progress made with his mental health. One of the EAs being a licensed clinical professional was able to assist in psychiatric treatment to ease the owner’s depression and anxiety. After medications were change in December 2004, the anxiety and fears of failure resolved, and then supervisory activities began in earnest.

Understanding a problem is meaningless until the leader is willing to take effective corrective actions. After three months of active supervision of sales and production, the improvement to the balance sheet was evident. Six months later, the Company’s performance was sufficient to impress a lender, and the initial goal of the BSP was completed, we refinanced the debt and eased the Company’s debt service significantly!