Seeking a High-Growth Plan

Musical Instrument Manufacturer: A Case Study on Seeking a High-Growth Plan

Situation

This musical instrument manufacturer, owned by two entrepreneurs, was a leading high-end producer that contracted with Cadre Partners to develop and then manage a high growth plan. During this initial business planning process, several serious financial, production and personnel problems became evident. The company was owned and operated by a husband and wife team along with a close friend.

Business Challenge

The company’s production was growing to meet its increased demand, but it was consuming a great deal of cash and was unprofitable. All partners wanted to continue to grow the company, but each had a different view of how to do so. Financial and marketing information systems did not capture critical data about the business. There was also a need to purchase some capital equipment that would have produced excellent manufacturing efficiencies, but the company did not have the resources to make the purchase. The bank lines were full and only one partner had guaranteed the lines, which contributed to tension within the management team. There were no management, communication, or financial information systems in place. Each party worked within a silo, without the benefit of knowledge-sharing or collaboration, preferring to manage their operation without any input or coordination from their partner.

Solution

First, a new budget and a program to manage the business was developed by Cadre Partners to produce cash for the business. Collections and receivables were targeted and a new vendor payment system was implemented. While researching the new financial model for the “growth plan” and discussing it with each partner, it became clear that the primary partner would be better served by downsizing the business and focusing on profitability, not growth. This enabled the business to pay off its bank lines and reduce the risk for the partner who provided personal guarantees for the bank loan. Cadre informed all partners of various growth plans that could be pursued and the partners decided to retrench. One of the partner’s ownership shares were purchased by the other and an appropriate and fair structure was put in place to preserve their friendship. Staff, inventory, overhead and marketing costs were reduced. The marketing program was also restructured.

Results

Today, this company is smaller but very profitable. The owner is taking more money out of the business and all bank lines have been paid in full. After two years on the retrenchment plan, cash was generated to purchase the capital equipment, which contributed to improving business profitability. The company’s products remain top in the industry and now the husband and wife have been able to balance their business and personal lives to enjoy the excellent performance of the business.