Summary
Rho helped a Beauty Products Trader based in Qatar help get out of a cash flow crisis. The company was into distributing beauty products to B2B and B2C clients. Its clientele included hotels, beauty parlors, and shops as well as they used to sell through their own showroom. The client couldn’t figure out why despite doing extremely well in sales, they were struggling to maintain adequate cash flow. Rho’s Financial team turned around the company in a matter of 6 months from cash flow negative to cash flow positive.
Client Situation
Upon preliminary analysis, it was clear that the company was not following standard accounting principles leading to a lack of clarity on profitability and financials. Also, the client had no data on the inventory stocks across multiple facilities including data on product expiry and aging of stocks. This was leading to misappropriation and the need to write-off expired products as the rules in Qatar were extremely stringent regarding compliance.
The company had a lot of debtors who were making part payments and the same was not reconciled hence unable to collect full sales proceeds. This was one of the major reasons that led to the cash flow problem. An MIS system was not in place which prevented the management from viewing real-time performance reports and taking informed decisions which lead to delayed and ineffective corrective actions.
Rho’s Approach
Rho’s Virtual CFO team was engaged to set the basics right. Firstly, The client and its accounting department were educated about the right accounting principles to be followed and its importance. To ensure proper stock keeping, It was decided to shut the outlets for 3-4 days for physical stock taking and to ensure end-to-end stock reconciliation. Rho team collaborated with the software development team of the client and introduced Bar codes to ensure efficient tracking of stock movements and billing. Part of the sales were manual and that was systemized.
The client had no control over debtors. Rho’s team suggested doing away with Part payments from debtors and moving to a cash-and-carry model. The entire debtor detail was reconciled by the Rho team and processes were set to ensure debtors are properly reconciled.
Stock aging was tracked to ensure the client sells products that were to expire earlier rather than other products which was not the case earlier. Rho’s team helped the client to liquidate soon-to-be-expired items. The MIS system was implemented to provide better information flow and provide clarity on the current performance status.
Lastly, costing techniques were used to provide product-wise, and channel-wise costs and profitability giving better clarity on profitable and loss-making channels and products.
Results
The implementation of suggested changes helped the client increase their net profit by upto 15% across channels. The client had a complete turnaround in terms of cash flow going from cash flow negative to cash flow positive. Most of the transactions were moved to Cash-and -carry model leading to upfront cash payments, using appropriate business techniques.
The MIS system that was implemented not only helped the client track all activities but also monitor and compare performance among its many subsidiaries.
