| Organization: A U.S.-based family-owned manufacturer of consumer products. | Need: Analyze EBITDA adjustments and align financials with the business’s true value. | Outcome: Collaborating with the client, CLA identified $4 million in EBITDA improvements. |
Understanding the situation
A manufacturing business — led by a multi-generational family committed to keeping production in America — has been serving its customers for more than 75 years. After exploring several options, the owners decided it was time to transfer the business to the next generation.
In preparing for transition, the owners believed the true market value of the business was underrepresented. In particular, a recent implementation of an enterprise resource planning (ERP) system — as well as a reallocation of capacity — needed to be carved out of the financials as one-time events, as opposed to part of the ongoing financial picture of the business.
Due diligence can help your business secure a stronger valuation.
In addition, the owners wanted a second set of eyes to identify, quantify, and prioritize any untapped continuous improvements that could potentially increase its EBITDA (earnings before interest, taxes, depreciation, and amortization) factor. A higher EBITDA generally means the company is more valuable. The more profitable the company, the higher its market value is likely to be.
Exploring the challenge
A team of CLA professionals performed a sell-side quality of earnings analysis of the current financial state of the business. The one-time events related to ERP and capacity changes were carved out as exceptions to the long-term economic health of the business.
Next, CLA joined the client on site to analyze manufacturing floor operations, profit and loss, inventory management, cost accounting, and key accounting workflows from sales order to cash.
The team identified several realistic and practical improvements — all of which could leverage the talents of existing staff and newly visible data and insights from ERP implementation. No further capital expenditures were required related to these improvements.
“Thanks to CLA, we’re in a much stronger position as we explore options for transitioning our business.” — Owner and CEO
Achieving results
The initial EBITDA analysis — combined with a follow-up analysis of labor and overhead — found an additional $4 million in potential EBITDA. These discoveries potentially improve the marketability of the company.
The potential increased EBITDA creates more options for the owners as a transition plan is finalized and puts the company in a position of strength for a new era of growth under new leadership and ownership.
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