Insights
- A well-established family construction business had grown significantly, but was experiencing new entries to their market
- The company was a market leader in quality and service, but customers were choosing low cost providers over service and quality
- More competition was being experienced for large institutional engagements
- Reductions were being reflected in the company’s gross margin percentage and the company’s cash position was being affected by higher labor costs
- Fewer highly qualified employees were in the market due to the new competitors
- The highly competitive labor market with record low unemployment, coupled with competitors offering “jump” bonuses, was making it difficult to maintain employees
- The family was not active in the business except for one member, so there was an immediate need for a family or senior executive leadership succession plan
Actions
- The Newport partner was retained to serve as an independent board member to this well-established family construction business
- Cash collections significantly increased by improving billing and collection including adding ACH and electronic payments to receive faster customer payments
- A risk management plan was created, including preparations for an economic downturn in mid 2019, long before the 2020 recession began
- A succession plan for senior employee retirements was created
- A compensation plan was also crafted (phantom plan) to entice new line and management employees and retain existing employees
- Backlog was significantly increased by measuring the point of fixed cost coverage so that bids could be made profitably at a lower gross margin
- Benchmarking and key performance indicator measurements were developed and kept the company in line to meet the financial goals established by the Board
- Guidelines were established for salary and bonus plans for executives
Results
- The company was well positioned to survive through the 2020 economic downturn
- Due to the significant cash balance increase, dividends were reinstated to family members after 12 years of no dividend payments
- The company was becoming the “employer of choice” in this industry as competitors were not prepared for the economic downturn
- The company’s cash position was doubled to prepare for expansion and growth
- All of the company’s non-real estate related debt was eliminated
- These efforts and results significantly increased the value of the company
