Stout developed complex financial reporting solutions for a middle-market private equity (PE) portfolio company specializing in risk engineering services.

The company’s PE sponsor faced pressure from the company’s banking partner (the lender) to produce robust financial reporting due to diminishing cash liquidity and profitability. Specifically, the lender requested that the company provide weekly cash forecast submissions, a detailed cost restructuring plan, a revenue forecast, and a thorough validation of historical financial statements.

We were engaged by the PE sponsor to drive these initiatives while a search for a new CFO and Financial Planning and Analysis (FP&A) Specialist was underway.

Cash Forecasting & Analysis

The company had no established processes for reviewing or forecasting cash receipts and outlays across 10 countries, 15 legal entities (LEs), and 35 different bank accounts. We worked with the LEs to outline recurring cash needs and set a baseline understanding of operational cash requirements. We also established a process requiring the LEs to submit short-term anticipated collections and payments weekly to company management.

Building upon the newly implemented process, we created a vigorous 13-week cash forecast, incorporating reliable collection and payment data, historical trend analysis, and the company’s revenue forecast.

After verifying the accuracy of the forecasting tool, we provided weekly cash forecast submissions to the lender.

Revenue Forecasting & Analysis

While we provided insights on the cash management processes, we held conversations with key accounting and finance personnel to understand entity-level revenue recognition policies and assumptions.

Once we obtained an understanding of how revenue was recorded, we developed a working revenue model to understand reported revenue variances between key systems and provide heightened confidence in GAAP-reported revenue.

Gross Margin Analysis

Stout, the company, and the PE sponsor determined that, in order to develop an effective cost restructuring plan, the company needed to derive granular gross profit margin and employee utilization data. We were able to leverage previously non-utilized raw data obtained from multiple disparate sources to build a financial model that unlocked new insights into the company’s gross profit.

Where the data itself was incomplete, we worked closely with management to develop a defensible and accurate cost allocation methodology. Additionally, we were able to tie relevant revenue and costs to project engineers, presenting reliable utilization and employee profitability metrics.

After a thorough validation exercise, the company and PE sponsor were able to leverage our model to implement new pricing strategies and initiate cost-cutting measures to the lender’s approval.

General Ledger Review

With the cash flow management, revenue review, and cost restructuring workstreams completed, we dove into a detailed review of the company’s historical general ledger. We also flagged instances of potential material deviations, suggested the corrective course of action, and provided potential process improvements to alleviate the risk of misstatement going forward.

After the company hired a full-time CFO and FP&A Specialist, we diligently transitioned the financial models and procedural documentation to the company and presented key insights to senior leadership.

As a result of our work, the company can provide relevant and timely data to the PE sponsor and/or lender and continue to analyze key components of the company’s operational model.