Inventory and cash flow are two areas that small businesses often struggle to manage. Dan Ostrander, owner of B&D Rollers, understands just how that can begin to derail a business, especially during a period of rapid growth. After reaching out to us, we helped B&D Rollers clear up their inventory issues, eliminate their cash flow headaches, and plan with confidence for the future of the business.
About our Client
B&D Rollers manufactures The Crusher, a hay roller that flattens the stem of forage for a quicker dry down, so it retains a higher RFV (Relative Feed Value). This family-owned company is located in Glenwood, Minnesota. With fewer than 10 employees, this small business has been shipping their products world-wide over the past 35 years.
Challenges
B&D Rollers had recently grown their operations and expanded their machining capabilities. They were making hay rollers at a faster pace than ever before. What seemed like a good problem to have, however, began to plague the company with inventory issues – both physically and in their accounting methods.
The company began to have too much capital tied up in rollers that had not yet been sold. The version of QuickBooks they were using only had the capability of using the average cost of inventory. In reality, inventory was in various stages of raw material and finished products. Therefore, Cost Of Goods Sold (COGS) was always inaccurate, which made the Profit & Loss Statement unreliable.
Carrying a lot of inventory requires a lot of capital, which the company did not have. Therefore, the company was not in a strong cash flow position and had difficulty meeting payment obligations to their vendors.
Hoping to get a better handle on accounting for their inventory, B&D Rollers made the switch to QuickBooks Enterprise. This allowed them to use FIFO and LIFO methods of inventory costing. Even so, their inventory woes and cash flow issues persisted. After floundering for six months, they called us for help.
Solutions
Cleanup inventory in QuickBooks
We went on-site to see the inventory process first-hand. We gathered information on the raw materials, as well as the finished goods. It was important to figure out the exact amount of each raw material going into the finished product.
In QuickBooks, we modified and streamlined their item list to account for the raw materials, which then become build assemblies, that result in a final finished good. With accurate Cost of Goods Sold, the Profit & Loss statement became reliable again.
Build up working capital
B&D Rollers desperately needed sufficient cash flow in order to pay their vendors and continue growing the company. To bring down the excess inventory, they moved rollers by running sales promotions.
We always suggest that our clients establish a good relationship with a banker and secure a line of credit when things are going well for the business, in case it needs to be tapped into down the road. Since the company did not have a large enough line of credit, we found another way for them to secure a low-interest, long-term loan with an EIDL (Economic Injury Disaster Loan). It’s very common for inventory-heavy businesses to have loans in order to balance the ebb and flow of demand for their products vs. inventory on hand.
Analyze pricing strategy
We closely examined each component of Cost of Goods Sold. In order to be certain that the cost of each roller was as accurate as possible, we reviewed all other overhead costs.
Together with Dan and his team, we projected the number of rollers expected to be sold, based on prior sales and trends. It was determined how many rollers need to be made in order to meet the sales expectations. Issues such as inflation, supply chain issues, and rising freight costs were identified. We considered the amount of markup needed to cover all costs, as well as make a profit.
We recommended that B&D Rollers utilize the Sales Order feature in QuickBooks. This allows businesses to track the orders they have secured, but have not yet delivered. The company continued their requirement of customers paying in full up front at the time of order placement.
We also reviewed their Accounts Receivable. We cleaned up the report so it’s useful for them to follow up with any Accounts Receivable still outstanding past the payment terms.
Results
With their business back on track, the owners are no longer losing sleep at night! Within four months, B&D Rollers was current with their payables. Since they have available cash, they are able to utilize payment terms for discounts, and they are in good standing with all of their vendors.
With cash flow problems no longer hampering growth, B&D Rollers hired a new team member in the front office. In addition to addressing customer needs, this team member supports the sales reps in holding them accountable to sales goals. A marketing company was retained to help with the website and SEO (search engine optimization).
Planning Ahead
We meet with B&D Rollers each month to review financials with the owners. These monthly meetings help to keep the owners engaged. Since they have a shared understanding of the company goals, they’re able to clearly relay sales targets to their team. We also monitor inventory closely to help them keep the cash flowing.
We’re happy to report that B&D Rollers is on track to increase their net income by 10x over the next year!
Multi Business Solutions has the knowledge, tools and experience to help your business through any challenges that come your way. We truly find that “the best way to succeed is to help others succeed.” Let us know how we can help your business succeed!