How one company weathered the storm
Many companies have had to manage out of difficult financial situations the past three years. Proto-Tel, Inc., , is an example of how a small manufacturing firm returned to pre-recession revenue levels.
Their revenue was down 38 percent in 2009 from 2008, and they needed to make change quickly to preserve cash, grow sales and start making a profit.
Proto-Tel is a custom plastic injection molded parts manufacturer based in Arvada with eight employees. Their customers are manufacturers and commercial users requiring unique and innovative products in voice and data telecommunications that includes thru hole printed circuit boards. Their protective cover products that were the mainstay of the company in the early years are industry standards today. They are primarily a manufacturer, but they also have the expertise to do design and product development for custom work or as an extension of a large company’s design and product development team.
Their products are sold under private labels for many of the leading telecommunication’s manufacturers, and also to a smaller extent sold under the Proto-Tel name for sale on their website. All products are assembled at the plan in Arvada with components being sourced primarily from domestic suppliers.
The result of their efforts over the past two years started showing in 2010. By the end of the 2010 they recorded a 10 percent increase in revenue over 2009 and 2011 is up another 30 percent. This year is on track to be back to 2008 levels. Here are a few areas they encountered on their journey:
Cash flow is their biggest challenge. The owner, Rich Drewes, would like to offload sales and marketing to others but it is not possible because of the current cash flow situation. During the difficult times Rich found the banking environment become much less personal and his banking relationship gave way to central office decision making and ratio based. He is still looking for ways to finance working capital to grow his business.
Plastics pricing is volatile and dependent on the cost of petroleum in the world market. Rich saw increased costs in plastic as well as other components in his raw material. In addition to the increase in costs there was strained availability of some materials, which required Rich to purchase more inventory than normal to assure he could meet the lead times his customers have come to expect. These factors forced Proto-Tel to improve efficiencies that reduced their breakeven point by 30% and help them remain competitive.
Their customers are 85 percent national, 5 percent international and 10 percent local to Denver (anything eight hours drive time or less). Cash flow restraints have limited Rich’s ability to meet regularly with his current customers, which is a concern for Rich. There has been some new business over the past year that has provided the boost in business for the company. Richard sees future growth coming from outside the telecommunications industry that could include power over Ethernet boards that they are currently producing for hospital nurse call stations. The company is focused on growing business in the local market to manage growth with a tight budget.
Survival over growth
During the past couple of years the focus has been survival over growth. This has been achieved, with revenue returning to pre-recession levels. The business is now leaner that it was and Rich has developed a thorough understanding all costs in the business. The strength of his business is in his dedicated employees and the longevity and reputation of the business in their markets. Rich is cautiously optimistic that the company is positioned for steady and sustainable growth.
Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits. Larry is a consultant, public speaker, and the author of two books “Owner Exit Planning: Leave On Your Own Terms” and “Mapping Your Recovery: Grow sales in difficult times”, www.roundhouseadvisors.com/growsalesbook . For additional information visit www.RoundhouseAdvisors.com