Banks & Associates Solves Cash Flow, Capital Structure and Tax Problems for Manufacturing Company
A family owned business has history as a 38 year old sheet metal fabrication, component and assembly manufacturer for the telecommunications and fiber optics cable industries. The company offers sheet metal fabrication and powder coating services, long and short-run metal stampings, metal chassis, metal cabinets, enclosures and assemblies for a wide variety of electronic components. The company works with a variety of materials such as CRS, stainless, galvanized, galvaneal, aluminum, copper, tin and plastic sheet. A husband and wife duo founded and has run the business since 1978.
Expansion for one customer led to two straight years of significant net operating losses, when the customer lost the contract through no fault of the manufacturing company. In addition, the cash flow shortages created by the losses also caused payroll tax problems until the owners could use personal resources to get back on track.
Even though the company had been profitable since that time, they were trapped by high interest equipment and real estate loans, had tax liens that couldn’t be satisfied, despite the fact they were growing rapidly. Before turning to Banks & Associates, their financing package had been turned down by multiple banks.
After a detailed analysis of the company and its operations, Banks worked with the company to develop strategies to: 1) generate cash quickly in order to purchase raw materials to produce for on time delivery; 2) create a long term capital structure to eliminate the high interest debt; and 3) resolve problems with the Internal Revenue Service.
B&A’s first step was to factor the company accounts receivable. This arrangement allowed the company to have immediate access to cash within two days of the delivery of a finished product. The access to cash allowed the company to maintain a smooth flow of raw materials to keep production lines running efficiently.
With Mom and Dad nearing retirement age, B&A suggested a transfer of ownership to the two sons who had been working in the business for ten plus years. The transaction was crafted to two entities – a real estate holding company and the manufacturing operating company. To protect the parent’s future earnings and estate provisions for another child not involved in the business, the purchase agreement introduced a family trust which owned a preferred class of stock paying dividends to mom and dad until company earnings would allow the boys to retire the stock. The structure also maintained eligibility for a SBA Guaranteed Loan creating $4.3 million in long term debt with a 25 year term.
Under a separate engagement, B&A performed a detailed analysis of the tax issues, reviewing company records and obtaining transcripts from the IRS to rebuild the complexities of three years of transactions. B&A discovered and documented company overpayments of penalties and interest while paying their tax obligations. A refund approaching six figures was received.