The Challenge
Tango IT Services faced significant financial and operational challenges as it navigated rapid growth and expansion across multiple countries. Despite tripling its revenue from USD 10 million to over USD 30 million within five years, the company struggled with critical issues that threatened its long-term sustainability. A lack of financial leadership left the company without the necessary insights to manage cash flow, profitability, and investor relations effectively. Complex regulatory environments, particularly in Argentina, led to costly tax liabilities due to improper transfer pricing practices. Additionally, inefficiencies in pricing contracts and receivables collection further strained cash flow, while efforts to scale sales operations yielded limited success, placing the burden of revenue generation primarily on the CEO. These hurdles underscored the urgent need for strategic financial oversight, operational efficiency, and a scalable growth strategy.
These challenges include:
1. Sophisticated Investor Group with Complex Reporting Requirements
Tango IT Services had a group of 15 private investors with high expectations for financial transparency and detailed reporting. However, without financial leadership in place, the company struggled to meet these requirements, leading to dissatisfaction and delayed communication.
2. Lack of Financial Leadership
The absence of a CFO or controller meant that key financial decisions were either delayed or poorly informed. The local staff accountant in Argentina lacked the experience necessary to manage the complex financial and tax requirements of an international company.
3. Complex Transfer Pricing Issues and Tax Compliance Risks
Operating across the United States, Argentina, and Mexico, Tango IT faced strict regulatory scrutiny from Argentina’s tax authority (AFIP). Improper intercompany agreements and transfer pricing practices resulted in a USD 600K tax liability, which had to be settled, further straining cash flow.
4. Unplanned Dividend Distribution Leading to Cash Flow Crisis
The Board approved a USD 1.2M dividend distribution without prior financial analysis, which left Tango IT with insufficient working capital. The company was forced to secure a $1M line of credit to maintain operations and fund revenue expansion.
5. Ineffective Pricing of Customer Contracts
Tango IT struggled with contract pricing due to a lack of visibility into client profitability. Billable resource costs were rising steadily, but pricing adjustments lagged behind, resulting in a gross margin erosion of approximately 10%. Management lacked a structured process for regularly updating pricing and evaluating margins.
6. Inefficient Receivables Collection (DSO)
Tango IT’s accounts receivable collection process was inefficient, with Day Sales Outstanding (DSO) exceeding 100 days. As a result, the company had to fund on average six payroll cycles for billable resources before collecting its first receivable on new contracts, placing significant strain on cash flow.
7. Ineffective Sales Strategy
Multiple attempts to hire salespeople yielded little to no results. The CEO was still the primary driver of sales, limiting the company’s ability to scale its customer base and revenue.
The Solution
To help Tango IT Services overcome its financial and operational challenges, Teel+Co delivered a comprehensive suite of solutions designed to enhance financial clarity, improve operational efficiency, and drive sustainable growth. By embedding fractional CFO leadership, optimizing cash flow management, resolving compliance risks, and restructuring the sales strategy, Teel+Co transformed the company’s approach to financial planning and decision-making. Each solution was tailored to address specific pain points, ensuring immediate impact and long-term scalability.
These solutions include:
1. Establishing Financial Leadership
Teel+Co embedded an experienced fractional CFO and controller into Tango IT’s operations, providing strategic financial oversight. This leadership team ensured investor confidence by improving reporting accuracy and timeliness while driving financial decision-making.
2. Enhancing Financial Reporting and Investor Communication
A customized financial reporting framework was developed, tailored to the needs of the sophisticated investor group. Regular updates, dashboards, and performance metrics were introduced, improving transparency and reinforcing trust with stakeholders.
3. Resolving Transfer Pricing and Tax Compliance Issues
Teel+Co collaborated with foreign tax advisors in Argentina to create compliant intercompany agreements and establish a proper transfer pricing policy. This approach mitigated the risk of future penalties and ensured compliance with AFIP and other regulatory bodies.
4. Implementing Cash Flow Planning and Liquidity Management
To address the cash flow crisis, Teel+Co negotiated favorable terms for a $2M line of credit. Additionally, a cash flow forecasting and planning process was implemented, ensuring the company could anticipate and manage future liquidity needs effectively.
5. Revising Contract Pricing Strategy
Teel+Co conducted a detailed profitability analysis of Tango IT’s existing client contracts and billable resources. A pricing model was introduced that linked resource costs to pricing adjustments, ensuring margins remained protected. As a result, the company recaptured the 10% margin through staggered price increases that had previously been lost.
6. Optimizing Accounts Receivable and Reducing DSO
A structured collections process was designed to reduce DSO, including improved invoicing practices, follow-up schedules, and incentive programs for early payments. With the new process in place, DSO decreased significantly, improving cash flow and reducing working capital strain.
7. Revamping the Sales Strategy
Teel+Co helped design a structured sales strategy that included:
- Recruiting experienced sales professionals with defined roles and clear KPIs.
- Implementing a sales process and CRM system to track leads, improve conversion rates, and reduce reliance on the CEO for sales.
- Establishing an enhanced compensation model to incentivize performance.
The Results
Teel+Co's strategic partnership with Tango IT resulted in:
Improved Investor Relations
Enhanced financial reporting and communication rebuilt investor confidence, leading to greater support for future initiatives.
Financial Stability and Compliance
Tango IT achieved compliance with tax regulations in all jurisdictions and avoided further penalties, significantly reducing financial risk.
Margin Recovery
By revising its pricing strategy and ensuring timely updates, Tango IT recaptured the 10% margin loss, boosting profitability.
Increased Cash Flow Efficiency
The reduction in DSO improved cash flow, ensuring the company could fund operations without excessive reliance on external financing.
Scalable Sales Model
With a structured sales process and professional sales team in place, Tango IT reduced its dependence on the CEO for business development, setting the stage for sustainable revenue growth.
Teel+Co’s comprehensive approach—embedding fractional CFO leadership, addressing compliance and pricing issues, optimizing cash flow, and developing a scalable sales strategy—enabled Tango IT Services to overcome complex challenges and position itself for long-term growth. The case exemplifies how Teel+Co’s integrated solutions transform financial and operational complexity into strategic advantage.
Confidentiality Disclaimer
In presenting this case study, we are committed to upholding the confidentiality and privacy of our clients. To protect their identity and proprietary information, we have altered certain details, including names, locations, and specific financial data. These changes are solely intended to preserve anonymity and do not impact the accuracy or substance of the case study. Our modifications ensure compliance with our confidentiality agreement and safeguard our client’s business interests.
