Manufacturer Cashflow Chaos to Profit - Learn How

You're feeling the weight of a business that's drowning on your shoulders. It's a nightmare, I know. Believe me, I've been there, and it’s incredibly stressful and overwhelming when you’re living through it every day.

First off, take a deep breath. This isn't uncommon, and more importantly, it’s not impossible to Okay, let's rewind. Imagine a business, we’ll call it “Acme Manufacturing”. It's totally made up, but facing a very real crisis. They make specialized parts for other companies.

The Initial Situation (The "Oh Crap" Moment):

• Cash Flow Catastrophe: Acme was spending more money each month than they were bringing in, and had for the last 6 months. Their business growth in the past year made things difficult. They had a couple good sized contracts for regular supplies to business but for all other parts it was just selling a few random parts here and there to keep operations going.
• Loan Overload: They had FIVE different loans. Admittedly, the interest rates were low however these loans were over RM1-3m each. They were only making roughly RM2-3m in annual profit. I really don't know how they could've gotten approved when their financials clearly show that 5 loans would be too much for them to handle.
• RM3 Million in Receivables: This one really upset me. They were owed over RM3 million by their customers, but the cash wasn't actually in their hands! Many of these invoices had just piled up, so collection strategies hadn’t really occurred which exacerbated their issue in needing better control of financial flows in the company!

There were other issues but these were the main 3 killers of this company. This was a sinking ship in every way you can imagine.

Phase 1: Emergency Response - "Stopping the Bleeding"

Cash Audit - No BS Accounting:

I literally sat down and reviewed every single transaction. Bank statements, credit card bills, vendor payments, everything. It sucked, I hated it. We mapped out a full 6 months worth of information on actual spend, instead of focusing on reports which showed false financial indicators due to bad bookkeeping. It quickly uncovered recurring monthly expenses they'd never cancelled. Quick cuts there.

We categorized the cash in three flows to create visibility for strategic changes. Operating expenditure (day to day task needs for normal running), operational growth (for all resources required to improve/expand) and debt repayment (payments to maintain their liabilities/loans/taxes)

Receivables Blitz - "Get Paid!":

Aging Analysis:

We created an ageing analysis report so we could finally visualize, not just total number of invoices. How old those unpaid invoices were. Some were over 90+ days past due. This was the main focus first, with a goal to first focus on receivables >60 days. 60 days, and below as these are safer receivables to collect. With the oldest and likely to default being given up at minimal percentage rather than waiting and never receiving a return. One tip is you can just ask them to pay half of the total they owe you. Better half than nothing.

Direct Contact with Clients:

We assigned 2 sales staff to specifically begin immediately contacting the overdue invoices customers. This was not a "call them randomly with random info," but specific sales techniques. With multiple phone-call and email follow-ups offering multiple repayment plans. It made an instant difference because the relationships had gone stagnant due to no ongoing process to nurture them.

Debt Collectors: I made sure I used debt collectors ( for only extreme cases of >90day clients) after other attempts failed, so we weren't taking unnecessary write offs as some of these old receivables required stronger strategies and skills, in which those experts specialised.

Phase 2: Restructuring - "Building a Better Boat"

Debt Consolidation:

Even after doing all that for cashflow, we were still bleeding cash because of the 5 loans. The loans were from 2 different banks. We spoke to both and ultimately negotiated to a haircut on the loans, extending the duration of the loans and giving a 2 month break from repaying for the company to recover. This took time but we showed accurate reporting/forecasting we were able to present a picture that the risk profile of manufacturing company changed as a result of poor decisions.

Operational Transformation - "Efficiency Machine":

Process Re-engineering: Evaluated daily task requirements and looked at "why, why and why" we perform each task the way we do! Questioning this lead us to identifying wasteful areas and improving daily tasks, by removing tasks where needed. As such tasks were no longer bottlenecks or causing delays in output

Software and Process Automation Implementation: This wasnt an issue for us but you should automate inventory/supply processes too for accuracy with minimal resource and effort requirements which also significantly reduces human error issues with less manual entry of data, giving visibility to issues proactively before any impact could occur.

Phase 3: Strategic Growth – "The Next Level"

Strategic Merger Partner Identified

I'm a merger boy. I love mergers because they are the closest thing to creating your very own Frankenstein's Monster, just much better looking. There is alot of debate about the effectiveness of a merger to improving company performance, I personally see it depends on the deal. Some deals have what we call Synergies which is how both companies complement each other. If there are many Synergies then the deal will likely lead to growth with a merger.

In my case, it lead to us acquiring another major manufacturer which allowed us to cut costs and implement the operational systems of the other company which were more efficient than ours. This also increased overall revenue and profit followed soon after. Eventually we reached a point where the company was able to recover even with the absurd amount of debt on the company.

The Takeaway?

It wasn’t just one thing. It was a systematic approach that tackled multiple areas: finance, sales, operations and structure to build stability. We attacked from both sides with both short-term quick-fix actions with a focus for big win long-term results too. You can see each aspect working synergistically. No one component stood still while one did something. It is like building a house, each brick required for strong foundation. And while all these actions occurred we got our hands dirty and never delegated to only team/department with strategic direction.

All that matters is if you're struggling, take action immediately to diagnose the issue. Do not ignore it and hope. Get help and you can fix these issues before they cascade into something worse.