Background:
A Construction Ltd. (name hidden due to confidentiality), a large construction company generating $400 million in annual revenue, faced significant financial and operational challenges, including project profitability issues, cash flow problems, and inefficiencies due to the cyclical nature of the industry. They approached our CFO advisory services to address these concerns.
The Problem:
During our “Right to Fit” call, the client shared concerns about operational challenges caused by the ups and downs of the industry. A thorough financial assessment revealed the following root causes:
1. Project Profitability Issues:
- Cost overruns and poor transparency in tracking expenses.
2. Cash Flow Limitations:
- Long payment cycles from clients.
- Heavy reliance on short-term debt.
3. Operational Inefficiencies:
- Slow reporting processes.
- Inaccurate financial forecasting.
Our Approach:
1. Improved Project Profitability:
- Implemented real-time project cost tracking.
- Introduced better bidding practices and provided financial training for managers.
2. Optimized Cash Flow:
- Implemented milestone-based invoicing to speed up collections.
- Renegotiated payment terms with clients and suppliers.
- Established a cash reserve policy for lean periods.
3. Revised Operations:
- Automated reporting, reducing reporting time by 50%.
- Created a dashboard for senior management to track key performance indicators (KPIs).
4. Long-Term Strategy:
- Secured a $50 million credit facility at reduced interest rates.
- Developed a five-year growth plan, including expansion into green construction.
Results:
- Increased Profitability: Margins improved by 7%.
- Better Cash Flow: Reduced receivable days from 120 to 75, saving $2.5 million in interest.
- Cost Savings: Eliminated $4 million in unnecessary overheads.
- Faster Decision-Making: Achieved a 50% reduction in reporting time.
- Strategic Growth: Secured a $200 million green construction contract.
Summary:
CFO advisory services helped Construction Ltd. navigate the cyclical challenges of the construction industry, improve profitability, streamline operations, and achieve strategic independence and growth.
This case demonstrates how CFO advisory provides industry insights, problem identification, and tailored solutions to tackle financial and operational challenges. Ready to gain insights into your business problems? Let us know!
