IPA Business Case Study

Who:

The client is a steel reinforcing bar construction company serving the Sacramento and San Joaquin valleys. They provide superior quality rebar services to any size project whether it is a pool or a high-rise building, they bring each project an enormous amount of rebar knowledge and expertise as well as hands-on job site experience proven to support all types of construction projects.

Goals:

The goals of the IPA consulting team were to guide and assist the client with strategic business planning, strategic marketing, profit and expense planning, effective organizing and business managing by:

• Positioning them for sustained and predicted profitability and success.
• Ensuring that revenues from all categories of business are optimized.
• Implementing and reinforcing supervisory and leadership skills that guide the day-to-day operations of the company.
• Ensuring that requisite management skill sets are in place.
• Establishing long and short term goals.
• Developing strategies to attain the goals.
• Developing programs to maintain the goals.
• Implementing performance indicators and controls to monitor the goals.
• Developing, installing and implementing appropriate organization and structure.
• Ensuring that the company’s organization structure follows their selected strategy.

Challenge:

The controller was overwhelmed with software not adequate for timely and accurate control. IPA found that the internal reporting for work in progress and job costing was not accurate or timely enough for budgeting and variance monitoring for jobs. The performance and financial stability of company had declined with growth and there was no plan in place for recovery.

Analysis & Results:

The clients wanted this company set up to run well, with or without them. They wanted to reduce their work time by 20% and make an additional $600,000 per year as well as:

• Manage growth to $12 million.
• Improve profits.
• Improve financial management.
• Train management to run a $12 million company.
• Shore up the infrastructure.
• Create a tax strategy.

The project was designed to establish immediate structure along with policies and procedures for management; including internal budgeting, accounting, inventory control, manufacturing and product handling operations, purchasing sales and planning. The intention was to establish the foundation and controls required to secure and further the profitability (and total ownership return) of the company. Turn-key controls needed to be incorporated for risk management, absentee ownership and increasing the market value of the company in the coming years.

The client’s first goal was to focus on increasing sales to $12 million, with sales to remain steady and grow only with price increases through the next two years. To accomplish this goal, the market was defined and identified by profit margin. This allowed the client to selectively bid by markets. A sales and marketing budget was designed to include overhead, advertising, sales compensation, benefits, lead generation techniques and processes, marketing materials and, if required, included trade show and support staff into the budget. Additionally the consultants and clients examined the cost effectiveness of past efforts, sales monitoring, contact lists, market and customer segmentation, capacity vs. the promised delivery dates, and adequate resources to compete.

In addition to growth, the clients wanted IPA to show them how to improve their profit margins. In order to accomplish this, the owners first needed to understand and utilize the financial management and evaluation tools that were designed for them to assist in improving company operating results and profits. Therefore, the management accounting training was a focus of attention for them, their estimators and supervisors during the project. The consultants then needed to establish a 3-year company operating plan, prepare a bank presentation to increase their lines of credit, implement a cash management system and implement a standardized bidding system – by the defined margins.

It was also necessary to enable the controller to complete the monthly financials in a timely manner after the month–end, in order to track and monitor performances on all levels. IPA needed to ensure that all reporting requirements were established. The chart of accounts was evaluated and revised in terms of providing more precise managerial information and a line-by-line evaluation of all direct and indirect costs, as well as a revised system of recording transactions to ensure proper allocations. These reports covered workflow from price setting, through field supervision and reporting to invoicing and collections. They also ensured that the employees were properly trained in the use of generating these reports so that compliance would never be an issue.

IPA developed a fiscal year budget, series of monthly budgets and trained the owners to treat profit as a fixed expense to ensure that it is given prime consideration. They were also trained to use the variance report to evaluate planned vs. actual results. Variance reports were developed for monthly and annual profit/loss reports, as well as detailed job costing evaluations. The consultants worked directly with the client to find the accurate margins needed to run their business and developed a reporting system to accurately reflect the business processes. They now have the financial information available to make informed decisions for improving profits.

In conjunction with the financial tools, the consultants identified what a functional organization should look like for this company. This included established job functions, job descriptions, defined accountability measures, set performance standards and an incentive plan. Each key function was designed to ensure accountability throughout the organization, eliminated overlapping responsibilities and clarified lines of communication. This ensures that every employee will know exactly what their jobs are and what the company expects from them. The consultants then coached the owners on the importance of evaluating their employees’ performance through well-designed performance reviews in order to increase productivity and improve employee morale. The owners also learned the how-to techniques required to improve their business skills and motivate their staff by identifying “best practices” for the company in order for them to establish consistency in how the company operates.

Next, a series of established and defined “benchmarks” was set forth. A delegation system was put in place with key indicator reports to track productivity and make every aspect of this company a viable profit center. The fundamental notion was to increase profits through improved productivity with bonuses based on performance. Strategic Business Planning necessitated pro forma financial plans; IPA designed a weekly overview of reports, information and controls to enable them the opportunity to take corrective action before problems became too extreme. These reports included invoice control, purchasing procedures, pricing processes, vehicle management controls, scheduling, costing methodology, a field operations manual, sales and customer contact reports, and administrative processes. These reports and systems were developed to provide the information simply and accurately. This enabled the owners the freedom of not having to be on site to know the tempo of their business, which allows them to step away from the business to pursue other endeavors.

The clients also engaged IPA to meet their strategic business and personal tax goals. This included determining the proper legal entity structure, ensuing tax savings, asset protection, employee retention, retirement planning, succession planning and estate planning.

At the completion of the project, the client reported that they extremely satisfied with the services provided by IPA. Field productivity is now a bright spot in the company. They are meeting or exceeding productivity margins, allowing them to implement the incentive plan. The consultants had trained all employees in the new procedures, developed a reference guide for supervisors and a job site management guide for field operations. By addressing delegation and accountability, along with giving their key employees the authority to carry out their organizational goals, the owners will now be able to reduce their work time by 20%. The company is ideally poised to increase sales to $15,000,000 by year end 2006; net profits are projected to reach $1,051,900 – a $900,000 increase. With IPA assistance in the bank presentation, the client changed banks and increased their line of credit up to $1.5 million.

"We love IPA! Everything they did made a huge difference and I can’t even begin to explain all that has been done for us. We continue to use all of the tools provided and it’s been working out great. Every dream I had came true because of IPA. We made up the money we invested in this project in just a few short months. Are we happy? OH YOU BET!"