Outsource finance managementConsumer Products
For a med-sized construction company with a total order book of around RO2 million.
The client was happily booking and filling business using basic cost calculation and budgeting methods until suddenly cheques started to bounce and there was no money to pay suppliers of building materials and workers on site.
When inspecting the issue we found out that there was not even a proper transaction recording method. The only computer found at the client’s premises was the one used by the quantity surveyor to calculate material cost.
The challenge is to create financial and transaction recording system for a company that has been in operation for eight years. The owner was sure there was enough profit but he was also sure that it was whereabouts unknown. The challenge is to ensure that there is enough money in the bank whenever needed to avoid distribution to projects in hand. We identified the following challenges:
- No proper financial recording system:
For over eight years the company never produced any sort of financial statements. Based on the promoter’s estimate, the business was profitable but there was no systematic measuring system except while calculating profitability of projects undertaken.
- No bookkeeping system and only few records:
There is no accountant or any transaction recording. LPOs, invoices and bills are stacked in unmarked folders and are left to collect dust over the time.
- NO proper banking relations:
The diagnostic determined the stressors that affected liquidity, sales and service levels. The only two sources of funds were promoters own money and collected invoices. The company failed to obtain banking facilities or any sort of bridge financing to streamline operations during dry periods.
The key to solving most of the company’s problems is through finance. The management needs to become better informed about operations and finance. The company also has to secure immediate financing to tackle possible liquidity crunches. These objectives were met using the following:
- Create financial statements from scratch:
The team focused its effort on creating financial statements for the past 36 months based on bank statements and manual count of existing assets.
- Establish bookkeeping system:
An accountant was recruited and a standard accounting software was installed on a brand new PC. New transactions get reported and registered as per IAS and management is provided with instant and accurate financial reports
- Obtain bank facilities:
We managed to help the client establish credit facilities with a local bank that consisted of overdraft, trade finance and bill discount. This move allowed our client to overcome periodic liquidity challenges associated with collection delay or incidental expenses
Our solutions helped the company not only to overcome existing challenges but also to remain steady and capable to accept even bigger challenges. At the end of our contact we registered the following achievements:
- Increase sales
The client started to compete for projects of higher value. The next project awarded was 6 times the size of any project ever received by the company since inception!
- Improve operations and production planning::
With proper accounting and transaction recording the client has become able better informed about the most relevant factors. Cost reduction, margin improvement, quality enhancement and better employee moral were instantly registered.
- Optimize the supply chain for perfect order planning:
Materials purchase system were improved when the company became able to use LC facilities as opposed to the old system in which most purchases were made on credit with heavy interest fees unilaterally charged by vendors simply because the buyer was desperate.
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Our experience with First Capital can be described as professional, efficient with personalized attention to details.
