Would it be feasible to reinvest in my struggling business?
I own a plastics business operating since 1995 which manufactures large hollow products. 3 years ago, the company was shutdown due to some reason, and I have since been in a huge financial turmoil. The company had at the time the largest market share.
We have re-initiated the business again, but the dynamics now have changed and the competition has increased considerably. New entrants in the market have come up with ways to cosmetically improve the product, use recycled materials for low cost and implemented new technology (blow molding).
Our initial batch of products was not successful in terms of quality, even though it was the same thing we have successfully been selling since last 20 years.
I would like an expert opinion if it is feasible to invest in this business again as I have limited options due to financial constrains, my investment will come from selling the single asset left now which is the factory land itself.
Hello Raza, from the tone of your question and without full details of the reasons behind your enterprise’s closure it would seem apparent that any further investment is ill advised. From you summery of the competitive 2017 market your business that once enjoyed market dominance is now comparatively ill equipped and under financed to compete effectively again. Unless you are able to recover from you financial turmoil then reequip your manufacturing processes with comparable or superior blow molding equipment with the revenue from the land sale (that may be unlikely). Then you have no struggling business and should find an alternative (low capitol investment), method to generate income from your remaining asset (the land).
Thanks for the feedback, what you analysed is quite literally the reality the company was shutdown due to a fraudulent incident during the expansion phase of my company onto the land where i stand now, to resolve the issue it took 3 years, honestly a very stupid hustled decision. Always !! do thorough investigation of the land you are about to purchase, its history, owners, surroundings, pending cases etc.
Anyways as i commented shelly, i can however come out of financial issues if i sell the land, and take it back on rent, i would only need to RnD on improving quality, as still the equipment i use (rotomolding) produces the cheapest product,although the profit margins will be much lower then before.
Will figuring out other markets with my existing equipment help ?
Sounds like a mess. Have a tax accountant or CPA analyse the numbers for a few years and render an opion. Everything sounds negative and getting worse. I think it will get worse faster if you sell land, use money for new eqt, etc. If the business lost money before w/o having to payout $'s to lease the land, expenses will get higher accelerating what I call "no money in the checkbook".
You need someone to do a detailed forecast for the next 3 years. If it looks bleak, find a buyer, put the money in the bank. Reinvent your life. Won't be easy, but the alternative sounds worse. Good Luck
It sure is quite a mess ! and for the forecast i tried that route unfortunately not much industrial information is available in my country, what the analyst came up with was a speculative model suggesting profitable business but much less then before if i can invest a good amount and pay off my debts very slowly.
Simple answer is yes, I would reinvest. The main reason is that is sounds like the land is the only asset left. If you sell it and can use the money to start the business again you can make it work. The other option is to close, sell the land and close the business all together. I'm not sure the cost of the land you are selling but is sounds like you had a really good business before and if you know your industry you can make it work again.
Hi Shelly, thanks for the motivation, currently this is the state i am in, working it out. Selling off the land can indeed bring good working capital, enough to modify my current equipment and steadily regain the market or stick with a niche.
But is this really a good practice in business to sell off the only asset i have remaining ? Also i would need to pay-off the debts i have accumulated from the same.
Hello everyone , thanks for the wonderful response, although the odds are strictly in favor of not re-investing but there are two more factors i want you to know, i do have a good part of the market in my favor due to good relationships over the lifetime of this company if i can match the quality(which i can) secondly the market has grown but can i think of it being off-set by new entrants?
Selling off the land does provide a huge financial score but 40% of it will be used to pay-off debts.
I think that you have had some good advice.
I would like to look in another dimension:
Do you feel comfortable that a need exists for your company to fulfil?
Can you provide a better solution then is now available, or a better product at the same price, or the same quality at a lower price? (Certainly it will not be a new product).
Can you make the profit necessary to make the investment worthwhile?
The bar to re-entrance is now obviously higher.
It you, not a CPA that must answer these crucial questions.
Without looking at the financials along with a business plan I cannot answer this..... I would make an appointment with a Score counselor to help you.... You must give us more information.....
Initially my "gut reaction is NO
Hello Robert, thanks alot for the interest,
Sorry the information is too less for a meaningful analysis and sorry again that currently i am not able to provide all the information.
Your gut feeling is the best bet !
Raza, my advice to you is to immediately seek the help of a Re-structuring Accountant/CPA. Only his/her advice can save this business/"stop the bleeding."
Suggestions sound positive but with lower profits and sluggish growth unless i pour inn huge investments and give longer credit terms to retailers.
The first i am able to by selling off the land the later is not feasible at all.
All of the advice you received is good sound advice, if you choose to go in the direction of pursuing old accounts with a new and better product produced with new and better machines.
A consideration is evaluating what other products can you make with the machines you already have. Perhaps there is some young entrepreneur that has a new product idea that you can team up with and make it worth both you efforts. Or perhaps there are other existing businesses that can use products that can be manufactured by your current process. What I am saying try thinking outside the box. Just like starting a new business however with your knowledge of how to do it.