Earnest Advisory

Improving Profitability: a Food Company’s Financial Restructuring

The client is a food company that specializes in supplying hotels and has an annual turnover of 50 million with a net profit exceeding 3 million. However, in recent years, they have experienced a trend of increasing turnover but declining profits, and the shareholders are unaware of the root cause of the problem. When my team took over this client’s case, we made the following adjustments based on the company’s situation:

 

Step 1, Conducting irregular inventory checks on a monthly basis and cross-referencing them with purchase orders, delivery orders, and corresponding invoices. As a result, discrepancies were found between the recorded quantity of certain inventory items and the actual count.

Step 2, Many individual suppliers failed to issue purchase invoices to the company, resulting in a sharp reduction in input tax credits and increased costs. We addressed this issue by conducting reconciliations with suppliers and requesting timely issuance of invoices.

Step 3, The finance personnel were not strictly adhering to the accrual accounting principle but instead recording transactions based on actual invoices, causing a lag in financial data and impeding its usefulness as a reference for the company. We emphasized the importance of timely recording based on the accrual accounting principle and introduced provisional accounts.

 

After nearly six months of restructuring, the company eventually returned to a normal track. The inventory management level significantly improved, leading to a noticeable reduction in losses and an increase in profits. This demonstrates the importance of finding suitable finance personnel or outsourcing finance teams in effective enterprise management.

This case illustrates that through optimizing and improving financial processes, conducting timely cross-checks of supplier invoices, and strictly adhering to the accrual accounting principle, companies can enhance their management level, reduce losses, and achieve profit growth.