February 16, 2021
Inglewood Helps Company Hit the “Reset” Button
Inglewood was recently hired by a, family-owned construction services company with a rich fifty-year history that had lost its way in recent years, and very much needed to hit the “reset” button. Some of the high-level challenges that the company was facing included:
- Efforts to be “all things to all people” led to the company taking on a significant number of jobs, including jobs that were outside of the company’s core expertise and which led to significant job losses.
- The need to “put out fires” kept management from being able to proactively manage the business.
- Significant differences of opinion existed between management principals as to how to fix the company’s issues.
- There was a company-wide longing for the “good old days”.
The above issues had caused significant deterioration in virtually every component of the income statement, balance sheet and in cash flows. The deterioration in cash flows forced a reduction in critical personnel which only led to the creation of more “fires”. The more that management was consumed by the company’s problems, the less that they could focus on communication with the employees resulting in a significant “us versus them” mentality. In turn, management was completely and totally burnt out.
Inglewood conducted extensive Zoom interviews with a number of current and even former employees, reviewed management practices and controls throughout the business process, studied job profitability for jobs completed or in-process during the prior three years, performed a detailed analysis of the company’s operating results, and evaluated the company’s go forward options. Our key findings regarding the company’s issues included:
- In an effort to improve profitability, the company was pursuing every available job that they could.
- However, the company’s management structure could no longer support the number of jobs taken on and yet there were no funds to expand that management structure.
- Due to limited management bandwidth and due to taking on so many jobs, the company’s estimation process was significantly missing the mark, resulting in additional unprofitable jobs and more fires to be put out.
- Further, due to either poor estimating, not taking the time to understand the client’s service needs, or sheer frustration with the company’s distress, many jobs ended up in disputes and/or litigation.
- Because of the recent years of losses and declining operations, there was no way that the company could be sold other than at a highly distressed value, one that was below net book value.
- Without dramatic change, there were no means to fix the business and there was no practical exit strategy for the owners.
This situation was simply not sustainable, and the company was racing towards an inevitable implosion. As such, Inglewood’s key recommendations were, among others, as follows:
- The company needed to immediately refuse to quote on jobs outside a narrowly defined band of potential projects that focused on their core expertise.
- This would allow them to dedicate more resources so that they could properly estimate the jobs they chose to quote.
- Further, they needed to stop taking jobs unless they produced an elevated targeted level of profitability.
- Management needed to shift from reactive problem solving to proactive problem avoidance.
- Management also needed to communicate better with the employees, explaining the company’s new direction and the reasons therefor.
- As the company reduced its size, they needed to take the opportunity to eliminate personnel who were a net negative to the business.
Effectively, Inglewood was recommending a refocusing and a slow wind-down of the business. This refocusing and slow wind-down was either going to allow the owners to achieve an exit value in excess of net book value or to find the appropriate level of business for its current infrastructure. Once the company achieved a sustainable level of operations and profitability, the owners would then have the option to grow the business again, but at a measured rate and only if they chose to.
Management immediately implemented Inglewood’s recommendations and equally immediately started to see long-desired improvements in the business. It is not yet known whether the ultimate result will be the wind-down of the business, the achievement of a sustainable business, or a successful business exit; but management has in-hand the means to resolve its issues. With the path forward now clear, management has been able to start overcoming its burn-out state of mind.