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Tyre Merchants

Tyre Distributor

CLIENT

Established in 2009, this business primarily sold truck tyres to a fleet market. A strong customer service ethic was their main point of difference, and it had the backing of a franchise group. It had rapidly grown to two branches and 15 staff, and a substantial turnover. The business was owned by two partners who were good mates and had worked together for a major player in the industry.

INDUSTRY CATEGORY

Tyre Merchants

EXECUTIVE SUMMARY

Key Issues:

  • Sales declining, with no sales function
  • Margin eroding in a soft market
  • Substantial HR issues across the board
  • Inappropriate company structure, no partnership agreement
  • Inaccurate accounts, hard to understand the true picture, under resourced
  • Pressing cashflow issues, large and slow debtors list

The business had been profitable to the extent of providing well paid middle management jobs for both partners and grew strongly after obtaining a lease in the Port of Melbourne precinct, attracting a sizable market share in that area. This included some large national corporations, well known in the industry sector.

A second branch was added in the Northern suburbs of Melbourne in 2013, and while this grew to a break-even level within 18 months, it then stagnated, and started declining in sales to a loss-making position.

In 2014 the business was distracted by a legal issue, and one of the two partners became ill. This coincided with a pronounced dip in the market, leading to extreme pressure on cashflow. One of the partners pushed to bring outside help in to get the business back in a sound footing, and Rohan Wright was hired in December 2014.

Early work included:

  • Addressing the lack of process and effort in collecting accounts, and this yielded almost $180,000 back in the bank in the first two months. The phone calls from creditors dwindled from 10 calls a day, to a few at each month end.
  • Getting the accounts to be timely and accurate, this would take many months.
  • Obtaining a highly motivated effort from the second branch manager that saw sales rapidly increase by over 20% to profitable levels.
  • Adding a strong Business Development Manager, who was kicking goals within six months.
  • Sadly, the partner who had become ill, passed away six months into the work, and this necessitated a management restructure. That included the hiring of another branch manager, and some delicate work establishing a new company structure with a proper partnership agreement.

    SOLUTION

    The Business Success Program with its structured approach to business improvement was the solid foundation on which a business plan was constructed.

    The following areas were identified as key to the business reaching it’s potential:

    • Rapid growth to cover the additional costs in the business from replacing the partner and adding the BDM role.
    • Development of a second major segment of business targeting small fleets, a less competitive, but harder to reach set of customers.
    • Completion of the work to get timely and accurate accounts.
    • Continued effort and refinement of processes to maintain cashflow, as the business paid its creditors before it received payment from debtors – on average.
    • Price rises applied where possible
    • Margin increases from bulk buying of high volume lines
    • Harnessing the talent of the managers to help run the business as a genuine management team.
    • Addressing staff quality and absenteeism issues

    In the ensuing three years, we have achieved almost all these goals, with the remainder well in hand.

    • Sales are up by around 80%
    • We achieved a 2% increase in gross margin on inventory worth well over a six-figure profit improvement.
    • The accounts are now produced on a timely basis every month and give real insight into the state of the business.
    • A variety of other KPI’s are tracked to ensure we understand in real time where the business is heading, and how it’s managers are performing. Its managers are a cohesive group, contributing to the running of the business as a whole.
    • Best of all, creditors are paid on time most months, despite the strains on working capital imposed by the growth in sales.

    OUTCOME

    The major outcomes of the program to date has been widespread and significant:

    • Profits before owners salary are almost double the average amounts from prior to the consulting work
    • Cashflow is under control and managed by the Admin Manager with little attention required by the working owner
    • Sales are continuing to grow in all areas, with a successful website and digital marketing campaign delivering concrete increases in cash sales
    • The owner has been able to take multiple holidays over the last year

    The business still has substantial upside with double digit growth in sales, and far more substantial profit growth targeted in the next two years.

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