Business Situation
A mid-market manufacturing firm was facing recurring cash flow constraints due to inefficient working capital management and inconsistent month-end closing processes. The leadership required precise financial visibility and actionable recommendations to free up trapped cash, reduce reliance on short-term lending, and boost liquidity to support growth initiatives.
As the primary consultant to the manufacturing company, an accounting and CFO advisory firm engaged SGA to provide specialized support for an in-depth assessment and optimization of the client’s working capital cycle.
SGA Approach
- Integrated Working Capital Modeling: We built a detailed financial model that comprehensively mapped the entire Cash Conversion Cycle (receivables, payables, and inventory). Data was drawn from multiple ledgers to precisely identify process bottlenecks and quantify optimization opportunities across the value chain.
- Dynamic Forecasting and Scenario Analysis: A robust forecasting framework was developed, incorporating dynamic assumption tabs for key metrics (Days Sales Outstanding (DSO), Days Payable Outstanding (DPO), and inventory turnover). This allowed management to simulate the financial impact of process improvements using base, stretch, and upside scenarios.
- Process Improvement & Controls: We established specific, actionable improvement targets, including vendor negotiation strategies, tightening credit controls, and inventory rationalization. Robust controls for monthly reconciliations were designed and implemented.
- Reporting and Continuous Monitoring: A concise reporting framework and automated monthly dashboard were delivered. This tool tracks working capital KPIs, provides cash flow forecasts, and includes space for management commentary, supporting continuous improvement and regular financial performance reviews.
Key Takeaways
- Enhanced Financial Visibility: Delivered an integrated working capital model that provides a clear, scenario-driven view of cash flow, enabling the finance team to proactively manage liquidity and optimize borrowing.
- Data-Driven Decisions: Supported management with actionable insights via intuitive dashboards and metrics, ensuring data-driven resource allocation and driving operational efficiency.
- Improved Process Control: Implemented robust controls and processes across the cycle, which resulted in measurable improvements across key performance indicators (KPIs) for receivables, payables, and inventory.
- Sustained Growth: Provided practical, ongoing monitoring tools that empower finance leadership to sustain efficiencies, manage risk, and support strategic growth initiatives.