Profitability Assessment for a Private Equity Portfolio Company

Client: Private Equity Portfolio Company
Requirement: Project Accounting Services

Business Situation:

The client is a private equity-owned portfolio company that manufactures signs and brand identity products for resellers throughout the eastern half of the United States. The company is primarily a “rollup” of independent manufacturing companies with separate finance and accounting systems and business quoting methodologies.

For one location, the client began investigating why the gross margin that was quoted on jobs was much higher than the actual gross margin realized on the financial statements. In addition, management was not able to confidently identify the “true” costs of production in that facility.

As a result, management seriously contemplated closing the facility which would have resulted in the loss of over 100 jobs.

ProNexus Solution:

ProNexus was engaged by the client to evaluate the difference in quoted verses actual gross margin, identify the true costs of production, and to recommend changes as needed. ProNexus assigned a consultant with both CFO and manufacturing operations experience to assess the problem form several angles.

ProNexus interviewed staff from finance and accounting, operations, engineering and sales and developed a hypothesis on the causes that generated gross margin differences. Also, in the process actual production costs were documented for the management team. With the true costs identified, ProNexus recommended changes to pricing/quoting strategies and presented new methods of continued cost data collection and analysis.

ProNexus was subsequently hired to develop a comprehensive quoting model that would more accurately reflect the cost of doing business in that location. With costs identified and a new quoting model, the client has started to generate modest profits in that facility and has moved towards a strategy of growth, not divestiture.

Post by Kaitlin Alfvin

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