This is an authentic case study; however, specific details have been anonymised to safeguard the client’s identity.
When supply chain disruptions threatened to sink a thriving manufacturing business, the real problem wasn’t just rising costs – it was a loss of confidence from their bank and a fundamental misunderstanding of their own market power. This case study explores how BridgePoint Group helped a manufacturer navigate covenant breaches, rebuild banking relationships, and discover they had far more negotiating leverage than they’d ever imagined. Through strategic financial modelling and market analysis, we transformed a crisis into an opportunity, proving that the right advisory support can be the difference between survival and closure.
Context: When COVID’s Ripple Effects Hit Home
Our client, a frozen foods manufacturer in regional Victoria, was doing well by most measures. With a substantial turnover and employing several hundred people, they were a significant regional employer producing products for Australia’s major supermarket chains.
Then COVID-19’s supply chain disruptions hit, and hit hard.
The challenge wasn’t demand – customers still wanted their products. The problem was that raw material costs skyrocketed, freight costs went ballistic and suppliers became unreliable. To keep production running, the business had to hold significantly larger volumes of raw materials than usual, tying up cash they didn’t have to spare. Their suppliers pushed through substantial price increases, but when it came time to pass these costs onto their customers – Australia’s big supermarket chains – they hit a wall.
Or rather, they assumed they’d hit a wall.
“These guys are big, hairy gorillas compared to us,” was the thinking. “They’ve always dictated price to us. That’s just how it works.”
But that belief, as it turned out, was costing them dearly. Profit margins were shrinking fast, and they were starting to breach their bank covenants – the financial performance thresholds that businesses must maintain as conditions of their lending facilities.
The bank was losing confidence, and the business was losing time.
The Brief: Rebuilding Trust When the Numbers Don’t Lie
When BridgePoint Group came on board, we were facing a multifaceted challenge. The immediate crisis was the bank relationship. The business had made a critical mistake that many companies make when things go pear-shaped: they’d gone quiet, hoping the problem would sort itself out.
It didn’t.
Banks lend you money, but, of course, they eventually want it back. When covenant breaches occur and communication dries up, banks start making assumptions – and none of them are good. In this case, the bank had not only lost confidence in the numbers but in the leadership team’s ability to navigate the storm.
To make matters worse, this particular bank had decided they wanted out of this industry segment altogether. They could see the supply chain chaos, the eroding profitability, and they wanted their capital deployed elsewhere. But here’s the rub: they’d already extended significant facilities. Did it make sense to walk away, or provide additional support to give the business a fighting chance?
The bank was painted into a corner, but so was our client. We needed to give both parties a path forward.
Our brief was clear: rebuild the bank’s confidence, demonstrate a credible path to profitability, and buy enough time to find a better long-term banking solution.
Approach: Building the Roadmap to Recovery
1. Creating a Sophisticated Financial Model
The first thing we did was build a comprehensive financial model – what banks call a “three-way model.” This isn’t your standard 12-month budget but a deeply detailed 5-year model. We’re talking about an integrated model that ties together your profit and loss statement, balance sheet, and cash flow projections over a meaningful timeframe.
Why three-way? Because together, these three financial statements tell the complete story. Most businesses only budget their P&L, maybe their balance sheet if they’re a bit more sophisticated. But without understanding how cash moves through the business – when you’ll need it, where it comes from, and where it goes – you’re only seeing part of the picture.
The model was built on rigorous assumptions drawn from historical performance and planned business decisions. If they knew a new customer was coming on board, we built in that volume. If they were purchasing equipment that would reduce labour costs, we modelled the capital expenditure, the financing repayments, and the labour savings. Every controllable variable was accounted for and justified.
This gave the bank something they desperately needed: confidence that management understood where they were headed and had a realistic plan to get there.
Read: Financial Modelling: why your business needs it.
2. Facilitating the Tough Conversations
But here’s where things got interesting. As we worked through the numbers, a stark reality emerged: the business couldn’t survive at current pricing. They were earning margins that simply didn’t justify continuing operations.
We helped them understand something crucial: they had to have difficult conversations with their customers about price increases. Not polite requests – non-negotiable conversations.
“But the contracts don’t allow for price increases,” they protested.
“Then you need to go to them and say, ‘We understand what the contract says. Notwithstanding that, here’s why we need an increase, and here’s what happens if we don’t get it.'”
We didn’t have those conversations for them – they have capable salespeople and a managing director who needed to own this – but we facilitated the process. We helped them understand their margins, articulate their position, and demonstrate through the model what sustainable pricing looked like.
3. Uncovering Hidden Market Power
Perhaps the most valuable insight came from proper market analysis. Our client had been operating under a dangerous assumption: that the supermarket oligopoly held all the cards.
In reality, there were only a handful of suppliers in Australia who could manufacture this product at the volume and consistency the major retailers required. The market was far more concentrated than our client had realised. If one supplier went under, the remaining players would have significantly more pricing power. They too were part of an oligopoly!
Think about that dynamic for a moment. Yes, the major national retailers are massive players with enormous bargaining power. But if they want these products on their shelves, they can only source from a limited number of manufacturers. It’s in the retailers’ interests to keep their suppliers viable.
Our client had far more negotiating leverage than they’d ever realised. Their sales team had been walking into negotiations expecting to “get their heads kicked in” on price, practically accepting whatever was offered because “we need the volume.”
That had to stop.
Understanding their actual market position changed everything. It gave them the confidence to stand firm on pricing, knowing that the retailers needed them as much as they needed the retailers.
4. Managing the Bank Transition
Armed with the financial model and a strategy for restoring profitability, we approached the existing bank. The model demonstrated a clear path forward, and our involvement as a third party provided the circuit breaker the relationship needed. It showed the bank that management was taking the situation seriously and had engaged professionals to navigate the crisis.
The bank agreed to short-term support – enough to keep operations running while we found a better long-term solution. Because here’s the reality: this bank wanted out of the sector. They were only lending more to protect their existing exposure.
Meanwhile, we began the process of finding a new banking partner. This takes time – you can’t decide on Friday and have it done by Monday – but by the time we were ready to approach new lenders, something remarkable had happened.
The price increases with customers had started flowing through. The business was profitable again. The predictions in our financial model were proving accurate.
Suddenly, we weren’t asking a new bank to take on a distressed business. We were presenting a manufacturer that had identified its problems, taken decisive action, and demonstrated it could execute on its plan. That’s a very different conversation.
Outcomes: From Crisis to Confidence
The results speak for themselves. The business secured short-term support from their existing bank, giving them breathing room to turn the ship around. With higher prices from their major customers, profitability returned. The financial model’s predictions were tracking with actual performance, proving the assumptions were sound.
This credibility opened doors. They secured a new long-term banking facility with a lender who understood their industry and believed in their future. Today, they have the right finance solution in place to support not just recovery, but growth.
But perhaps the most significant outcome wasn’t visible on the balance sheet. The business gained a sophisticated understanding of how they make money, where they make money, and what it takes to protect those margins. They learned that market power isn’t always where you think it is, and that tough conversations – with suppliers, customers, and banks – are sometimes the only path forward.
They also learned that when things go wrong, the worst thing you can do is go quiet. Proactive communication with your bank, backed by credible numbers and a clear plan, is essential.
The Broader Lesson
This manufacturer’s story isn’t unique. It’s one of many such stories we could tell. Perhaps you are reading this and thinking ‘is this about me’? The truth is that many businesses underestimate their market position, avoid difficult pricing conversations, and fail to communicate effectively with their banks when challenges arise. Small margin erosions – a cent here, a cent there – seem manageable until you multiply them by hundreds of millions of units.
The difference between businesses that navigate these challenges successfully and those that don’t often comes down to having the right tools and expertise at the right time. A sophisticated financial model isn’t just a document for the bank – it’s a strategic tool that forces clear thinking about your business’s fundamentals. Understanding your market position isn’t academic – it’s the foundation for effective negotiation.
CEOs and CFOs don’t have all the answers, all the time – and they shouldn’t need to. If your business is facing similar challenges, or if you’d like to understand the power of financial modelling and strategic advisory support, contact BridgePoint Group. Sometimes the difference between survival and growth is simply having the right people in your corner.
