Accounting review for an industrial manufacturer

Profit Focus CFO was referred to a new client with some urgency, an industrial manufacturer with about $5.0 million of annual sales, due to the serious illness of their long-time bookkeeper/controller.

The bookkeeper’s illness was so serious we didn’t even have a chance to meet him when we transitioned. Some of the frustrations of owner/CEO was that he thought his company’s financial performance was lacking versus his competitors and he couldn’t explain the difference in his companies profit margins with the margins that, he thought, his competitor was enjoying. His competitor had just enjoyed an incredibly generous trade purchase from a publicly traded entity.  My new client also wanted to explore a trade sale but he couldn’t produce logical consistent financial data and the information that his bookkeeper had produced was illogical, inconsistent and showed modest, or really non existent profit margins.

We came in and did an assessment of the client’s financial operational and it appear that the long-time bookkeeper had his own method of accounting that wasn’t in compliance with GAAP (generally accepted accounting principles), showed historical financials that were incorrect and didn’t depict the level of profit that really existed.  Worse, the historical financials of the long-time bookkeeper are not what you would want to share with a banker or share with a potential trade buyer as they would not give rise to the true value of the company.  Lastly, it is quite probable that the company understated their pre tax profits during some period of time prior to our engagement.

Their long-time bookkeeper was just that, a bookkeeper, who lacked the sophistication and knowledge to help guide a business and to navigate the opportunities and exposures that a business often faces.  Nothing against him, but he was not the resource that my client needed for the exception challenges that my client faced – challenges related to a trade sale and the production of consistent, logical, GAAP oriented financials that made sense and could be used by the C level executives to manage the business.

The anomalies that we helped identify, led the CEO and me to drill down on some other items and we found more than a few inefficiencies – the sum of these inefficiencies explained almost all of the perceived differences between my client and the competitor of my client.  His correct financials could be used to obtain bank financing and would likely lead to a trade sale that would give rise to a much higher valuation (a 7 digit difference in all likelihood) that it might otherwise.

That client still has lots of challenges but understands their business far better than they did just a few months before. And the have the contentment of knowing that the valuation for their life’s work is significantly higher than it was previously.

Had he tried to consummate a trade sale with the bookeepers financial data instead of what Profit Focus CFO was able to help him produce, it could have, quite literally, cost him in excess of 7 digits in proceeds from a trade sale.