CEFO Engagement: Transforming Financial Operations at a Chemical Manufacturing Plant


  1. Introduction

In today’s competive business environment, ensuring optimal financial operations is key for manufacturing companies. This paper recounts an engagement where focused financial intervention transformed the operations of a local chemical manufacturing plant.

  1. Background

When our team first approached this plant, it was clear that legacy systems and practices were impeding progress:

  • The plant was working with an outdated QuickBooks desktop system.
  • Inventory valuation posed challenges, leading to inaccuracies.
  • The high costs of factoring receivables burdened their resources.
  • Financial reporting was relegated to year-end processes and often contained material mistakes.
  • Despite these challenges, there was ambition in the owners’ desire to construct their own plant, requiring intricate financial planning and bank negotiations.

III. Actions Undertaken

Our engagement was rooted in understanding, strategy, and execution:

  • Balance Sheet Evaluation: Our primary step was to assess and cleanse the balance sheet of material misstatements, laying a foundation of trust for future financial negotiations.
  • Strategic Direction: We sought to divert from the high-cost invoice factoring system, aiming for more sustainable and cost-effective financing methods.
  • Projections & Forecasting: Leveraging data, we crafted a 5-year projection model predicting margin enhancements, attributing them to the anticipated efficiencies of the new plant and revised product SOPs.
  • Bank Collaborations: With accurate financial records, we introduced the company to three distinct banks. Their renewed interest was a testament to our strategic recalibrations.
  1. Outcomes Realized

Our methodical approach bore fruit:

  • Robust Financing Secured: 
  • $5 million for the new plant.

o A $750k equipment credit line.

o An adaptive credit line based on monthly accounts receivable and inventory.

o Discontinuation of Factoring: By transitioning from the factoring model, we unlocked substantial cost savings.

  • We were successful in acquiring an IDA grant, promising: o Ten years of tax savings.

o Deductions on mortgage recording tax.

o Sales tax waivers on materials.

  1. Conclusion

This engagement stands as a testament to the transformative power of strategic financial intervention. Through meticulous planning, active collaboration, and strategic foresight, we’ve ushered a local chemical manufacturing plant into a new era of financial and operational prosperity. They continue to prosper with a new equity partner supporting their efforts.

Valuations can help business owners plan for the future

If someone was to suggest that you should have your business appraised, you might wonder whether the person was subtly suggesting that you retire and sell the company. Seriously though, a valuation can serve many purposes other than preparing your business for sale so you can head to the beach. Think of it as a checkup that can help you better plan for the future. 

Strategic planning: Today’s economy presents both challenges and opportunities for companies across the country. Chief among the challenges is obtaining financing when necessary — interest rates have risen, inflation is still a concern and many commercial lenders are imposing tough standards on borrowers. A business valuation conducted by an outside expert can help you present timely, in-depth financial data to lenders. The appraisal will not only help them better understand the current state of your business, but also demonstrate how you expect your company to grow. For example, the discounted cash flow section of a valuation report can show how expected future cash flows are projected to increase in value. In addition, a valuator can examine and state an opinion on company-specific factors such as: Your leadership team’s awareness of market conditions, what specific risks you face, and your contingency planning efforts to mitigate these risks. As you go through the valuation process, you may even recognize some of your business’s weaknesses and, in turn, be able to address those shortcomings in strategic planning. 

Acquisitions, sales and gifts: There’s no getting around the fact that, in many cases, the primary reason for getting a valuation is to prepare for a transfer of business interests of some variety — be it an acquisition, sale or gift. Even if you’re not ready to make a move like this right now, an appraiser can help you get a better sense of when the optimal time might be. If you’re able to buy out a competitor or a strategically favorable business, a valuation should play a critical role in your due diligence. When negotiating the final sale price, an appraiser can scrutinize the seller’s asking price, including the reasonableness of cash flow and risk assumptions. If you’re thinking about selling, most appraisers subscribe to transaction databases that report the recent sale prices of similar private businesses. A valuator also can estimate how much you’d net from a deal after taxes, as well as brainstorm creative deal structures that minimize taxes, provide you with income to fund retirement and meet other objectives. In the eyes of a potential buyer, a formal appraisal adds credibility to your asking price as well. And if you want to gift business interests to the next generation in your family, a written appraisal is a must-have to withstand IRS scrutiny. 

Going the extra mile: You probably have plenty of other things on your plate as you work hard to keep your business competitive. But obtaining an appraisal is a savvy way to go the extra mile to get all the information you need to wisely plan for the future.