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THE COMPANY

Kilgore is a private company 100 percent owned by Steve MacLinden. Steve's longterm plan is to exit the business when he is ready to retire in probably five to 10 years. Steve's only child is a daughter who has gone into acting and has no desire to join the company. Therefore, Steve's view is that the company must either be sold to one of the large publicly traded OEM manufacturers or be floated as a public company as a way for him to exit the company profitably. Either way, the next few years would be pivotal in ensuring that the business is on a sound footing and increasingly profitable, and hence has an enhanced exit value. It is also in his plans, if possible, to leave a portion of the company through a share distribution to the employees who stayed with him throughout the years and who helped him keep the company a going concern.

The main focus of the company had always seemed to be cash flow management. While the business had managed to be profitable on an accounting basis over the past five years, it seemed that Kilgore was always short of cash at critical times of the year. In part this was due to thin margins and generous payment terms demanded by the auto manufacturers that were Kilgore's key clients. With tight market conditions, the major auto manufacturers were able to demand and get extended payment terms. Thus management of cash flow was a key function for Cathy Williams and her treasury team to focus on. While economic conditions in the automobile industry had improved dramatically since the depths of the 2008 financial crisis, banks were still wary of extending operational lines of credit. Many industry observers felt that the overall market conditions were still shaky and the recent increase in automobile sales and profits might be a consequence of necessary replacement of aging vehicles, rather than a sustained improvement in the mind-set of consumers, as many consumers delayed new car purchases as a result of the 2008 crisis. A chart of U.S.-based auto sales is shown in Exhibit 19.3.

The new U.S. auto supply contract held the risk of dramatically increasing the concerns about cash flow management. While the addition of accounting and control systems that Cathy and her team had implemented had improved the cash flow situation significantly, the net profit margins were still quite tight. The added uncertainty of exchange rate fluctuations might throw things out of balance, and the company would be forced to scramble on a monthly basis to make payroll as it had done previously.

 
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