Medical Devices

Issue Faced. Three years of negative cash flow, low margins, weak cost controls , inventory and general ledger mismatch, confused management, loan covenants broken and bank credit line up for review in three months.

Industry. Medical anesthesia equipment and medical distribution

Location. North shore of Boston

Size Of Company. Down to $5 million

Who Brought In The Team/Individual. CPA firm referral. Hired by owners

Goal Of Assignment. Define the problems for management and create a plan to increase prices. Develop a budget with the proper level of operating ratios, then initiate actions with management to bring actual operating expenses to budget levels. Begin actions to prepare for bank credit line review.

Actions Taken. Required management to repay company loans to provide cash required. Reduced operating expenses to equal gross margin for medical equipment. Developed a three-stage pricing plan for the next 12 months. Market research uncovered a new service for hospital gas analysis, which fit into their equipment services, a major gross margin contributor. This “GAS” service will become the focus of the business.

Results. Pricing plan resulted in incremental revenue in 45 days. Operating expense reduced by 6% of revenues. Hired certified “GAS” analysis service person. Changed major product lines incurring losses, from distributor to sales rep. status. Reduced those corresponding inventories and freed up cash. Realigned sales territories, reduced sales personnel by one non-performer. Hired part time ERG-CFO to solve inventory costing issues and set up accurate controls.

Assignment Duration. Six months and on going overview

Resources Utilized. Internal resources and ERG financial executives

Testimonial. The Bank meeting started out very tense and strained. The Bank very unhappy with the prior year and even more so with the current year-end results. ERG's Executive Report outlined the management commitments, pricing actions taken, early results and near term actions planned, which changed the atmosphere and set the stage for continuing financial support. The report indicated positive cash flow in the current fiscal year.

Submitted By. Arthur Williams