Be Our Guest
Be Our Guest, Inc. Case Assay Folio 1 INDEX 1. Key success factors & aggregation performance………………………………………………….. 3 2. Coffer angle apropos the performance………………………………………………….. 7 3. Coffer costs angle at the end of 1998………………………………………………. 10 4. Administration angle apropos the coffer financing…………………………………. 13 5. Exhibit 1 – Anniversary Assets Statements (1994-1997)………………………………………17 6. Exhibit 2 – Anniversary Antithesis Bedding (1994-1997)…………………………………………….. 18 7. Exhibit 3 – Anniversary Assets Statements 1997………………………………………………. 19 8. Exhibit 4 – Anniversary Antithesis Bedding 1997………………………………………………………20 9.
Exhibit 5 – Forecasting………………………………………………………………………………………21 10. Exhibit 6 – Anniversary Ratios…………………………………………………………………………………. 22 11. Exhibit 7 – Anniversary Ratios…………………………………………………………………………….. 23 Tudor Aggregation Five Folio 2 1. What are the key success factors in this accessories rental business? How has the aggregation performed the able few years? Key Success Factors Five of the key success factors are as follows: First, the breadth of the business is ideal for administration several projects at once. This is due to their axial Boston location. The adeptness to handle everal projects at already gives the aggregation a aggressive bend and allows them to attain a achievement as abutting to the abounding abeyant of the aggregation as possible. Second, the company’s leaders accept been acknowledged in networking to primary and accessory clients. This has aided in growing a business that is based on a foundation of able company/client relationships. These able relationships accept led to cogent echo barter as a able abject of the company’s revenue. Fostering these relationships throughout the years of the company’s actuality has additionally led to abiding acquirement advance year afterwards year.
This acquirement advance is apparent in the financials and, application the Admixture Anniversary Advance Rate, it can be apparent that this advance in acquirement has been 14. 26% from 1994 to 1997. Third, the authoritative administration is able-bodied able in the accommodation industry as able-bodied as alternative industries that chronicle to the acknowledged operation of a business. Stephen Lizio was complex in the aliment and wine business above-mentioned to founding Be Our Guest in 1983. Al Lovata was ahead a broker and began his accord with Be Our Guest as a banking consultant, afterwards abutting the alignment full-time as the Chief Authoritative Officer.
Lizio and Lovata calm anatomy a foundation of able adeptness of the accommodation Tudor Aggregation Five Folio 3 business and the basic adeptness of finance, appropriately giving the business a bulk of compassionate both its industry and how to administer the money advancing into the company. Simone Williamson was brought on to the aggregation and comes from years of acquaintance in the aliment anniversary business. She additionally came to the aggregation with able networking admission in the accouterment industry in Boston, which added reinforces the added success agency declared above. This administration aggregation is fabricated up of associates that accompaniment ach other’s strengths, as able-bodied as accommodate the all-important accomplishment sets for active a acknowledged business. The fourth key success agency is that the aggregation articular its business plan aboriginal on and captivated its advance throughout the years afterwards aberration to business expansions that would accept resulted in college profits but beneath turnovers. This can be apparent in the company’s assay of the abeyant of The authoritative aggregation bent that this entering the accoutrement rental market. market, admitting awful profitable, would aftereffect in time delays and best turnovers and would breach their bulk business.
The aggregation recognised that this breach could aftereffect in lower advantage and splintering of the bulk business structure. Rather than aggrandize into a low accumulation allowance business "tents", in which the administration lacks bazaar expertise, they chose to stick to their antecedent business plan and focus on their key strengths rather than aberrate from the company's set fundamentals. This archetype illustrates that the aggregation followed its aboriginal business plan and complied with its mission and eyes from the alpha afterwards deviation. In accomplishing so, the aggregation congenital a able foundation and upheld the backbone of that foundation.
The fifth key success agency articular actuality is the aerial affection of anniversary as able-bodied as the aerial affection of the rental accessories provided to clients. The authoritative aggregation recognised aboriginal that they could attempt in either bulk or Tudor Aggregation Five Folio 4 quality, and the aggregation chose to attempt in quality. Allotment of this aerial affection anniversary is apparent in the company’s adherence to its audience through its alertness to bear alone one table on abbreviate apprehension if a applicant is in need. Through aerial affection service, the aggregation has upheld its networking admission to audience by architecture able relationships.
This aerial affection anniversary accumulated with aerial affection rental accessories articles has accustomed the aggregation to admission a aggressive bend over its competition, accumulate that aggressive advantage, and advance able company/client relationships throughout the years. How has the aggregation performed the able few years? Viewpoint – Independent angle Be Our Guest, Inc. originated in 1983 and is still advancing in a actual aggressive and airy industry 14 years later. Over the able few years the aggregation has apparent cogent growth.
We see that Anniversary sales revenues accept consistently risen from 1994 to 1997 with a Compounded Anniversary Advance Amount (CAGR) of 14. 26%. 1997 was an absorbing year for the aggregation with a 22. 7% admission in revenues. Gross Margins were actual connected year over year for 1994 through 1997. Gross margins for 1994, 1995, 1996 and 1997 were 53. 9%, 49%, 52. 63% and 55. 5%, respectively. Be Our Guest, Inc. is accomplishing a solid job of befitting the Costs of Acquirement in band with the Sales Revenue. It is a absolute assurance to see this growth, because we can be assured that the aggregation is blockage competitive, while not actually giving in to the appraisement crunch.
Annual Sales Acquirement has a able CAGR, but it is important and apropos to agenda that the CAGR of absolute Operating Costs is higher. It is about 5% college and this is actual important, because Be Our Guest needs to break in ascendancy of its expenses. Tudor Aggregation Five Folio 5 The aerial and accretion Operating costs are acid into the Operating margins, which additionally cuts into the basal line. Be Our Guest’s antithesis breadth shows able signs of liquidity. Accepted Ratios for the able four years accept remained aloft 1 proving that the aggregation can handle its accepted liabilities. The accepted ratios are not acutely aerial (19941. 7, 1995- 2. 17, 1996- 1. 15 and 1997- 1. 16), but they can awning the accepted liabilities. It is important to agenda that the aggregation is operating on a attenuate band because the accepted assets are almost accoutrement the accepted liabilities. This is decidedly abhorrent because we are ambidextrous with a aggregation operating in a melancholia business. It is a affair that the accepted arrangement hardly breakable afterwards 1995, and this is primarily due to Be Our Guest converting the coffer band into continued appellation debt in 1995. The accepted arrangement in 1995 is an outlier, because 2. 17 do not accurately represent the company.
The quick arrangement is the aforementioned as the accepted arrangement for Be Our Guest because they do not accept anniversary for all of the rental accessories is beneath acreage and equipment. They affectation a able alive basic position as well, which is accession admeasurement of liquidity. Banknote position is a affair for we can see in 1994 and 1997 that they actually had an Overdraft, and for 1995 and 1996 banknote is not actual high. However, this aggregation is in an industry that is added of a receivables business, so the banknote position is not a aerial concern, abnormally accustomed that it is accoutrement the accepted liabilities.
Since this is a receivables business it is important to attending at the Receivables Turnover ratio, and we accretion that this is actually consistent, about aback comparing to the Payables Turnover arrangement we see that they are advantageous out added bound than they are receiving, which is a problem. In 1995 they are advantageous out alert on boilerplate afore collecting. Be Our Guest needs to focus on accepting its receivables in a added appropriate manner. Tudor Aggregation Five Folio 6 2. As the coffer accommodation officer, Anne Granger, how would you appearance this company? What apropos adeptness you accept about the business and the lending elationship? What factors accommodate a antecedent of abundance aback because the acclaim risk? Anne will attending at Be Our Guest, Inc. with both an anniversary and anniversary angle actually absorption in on the company’s liquidity, advantage and how they will bout up to the agreement ratios established. The aggregation is liquid, but it is not acutely liquid. Be Our Guest, Inc. is almost accoutrement the accepted liabilities, and from a banks angle we would appetite to see that there are not any apropos in this area. If the aggregation is to become insolvent, we appetite to be able to get our outstanding antithesis back.
We apperceive that Q1 is the affliction division for the company, and you can see that for Q1 1997 the aggregation displays a accepted arrangement of . 88, which is artlessly not good, and agency that during that division they did not accept the adeptness to pay all accepted liabilities, appropriately accepting to admission the band of acclaim during this quarter. Q1 is additionally the hardest ages for this aggregation to absorb its receivables, which can sometimes be the anniversary for clamminess problems. The top band advance is abundant to see, abnormally in the aggressive amplitude that the aggregation operates in, but we additionally charge to appraise the blow of the assets statement.
It is apropos to see the Operating Accumulation Allowance as able-bodied as the Absorption Coverage Arrangement crumbling year over year. Operating Accumulation Allowance shrinking is a abrogating because it indicates that the aggregation is not authoritative its operating expenses. Absorption Coverage Arrangement is abnormally apropos because this arrangement indicates the affluence of advantageous the absorption on the outstanding debt, and Be Our Guest, Inc. may attempt advantageous the absorption bottomward the alley if the arrangement continues to decline. Agenda that the aggregation is currently actually able of advantageous for the absorption on an anniversary and anniversary Tudor Aggregation Five
Page 7 basis, but the trend bottomward will be noticed. Be Our Guest, Inc. relies on debt to body the business as you can see from the continued appellation debt to disinterestedness ratios. However, the ratios are adequately connected and it drops bottomward to . 43 in 1997. The aggregation is added than able to awning the absorption of this debt as acclaimed earlier. Banknote Breeze is actuality abnormally afflicted due to the abnormally ample admission (56%) in G during 1997. According to the comment on folio 4 of the case, a aggregation the admeasurement of Be Our Guest should accept G sales in 1997 afterpiece to $565,718 rather than the $840,718 that was reported.
The coffer will accumulate a authentic eye on Banknote Flow/Debt Anniversary Arrangement and Debt/Tangible Net Account Arrangement forth with the basal line, aback the covenants accommodate requirements apropos these. The covenants crave the Banknote Flow/Debt Anniversary arrangement to not be beneath than 1/25:1, and the aggregation is in band with this agreement on an anniversary basis. However, the aggregation does not amuse this agreement aback attractive at the anniversary figures. Debt/Tangible Net Account cannot be greater than 2. 00:1, and Be Our Guest, Inc. satisfies this agreement on an anniversary and anniversary basis.
According to the covenants, the aggregation can’t acquire two afterwards abode of net losses; nor acquire a net accident for any budgetary year. The aggregation did acquire a accident in Q1 1997, but followed with a able Q2 net profit, so the aggregation is in acquiescence with this agreement as well. Be Our Guest, Inc. is in a melancholia industry, which is a concern, but alike added of a affair is the company’s disability to aftermath projections. We accept that projections may not be acutely accurate, but it is accessible to activity through the use of aplomb intervals.
The coffer becomes a little added able with the seasonality because they feel that Al Lovata (former Banker) is acquainted of the risks associated and has a handle on them. Tudor Aggregation Five Folio 8 The antithesis breadth is decent, but it is not abundantly able because it is almost accoutrement the accepted liabilities. As a broker we would additionally be anxious about the chump makeup. Be Our Guest, Inc. relies heavily on two authentic barter (Customer A and B), which accomplish up over 21% of the company’s sales.
These two barter accomplish up 1/5 of the company’s budget, and I would like to apperceive if the aggregation has any advancement affairs in case they absent either of these barter and has performed the due activity appropriate to accomplish abiding its above barter are not defalcation risks themselves. Alternative than these top two customers, it appears that the chump abject is advance out appropriately. The able covenants in abode are a antecedent of abundance for the bank. Not alone do they accept able covenants, but the coffer additionally has about all of the company’s assets apprenticed and the shareholders agreement the loan.
Given that this is an S Corporation, the shareholders’ claimed assets would be safe, but aback these shareholders affirmed the loan, the coffer can go afterwards the claimed assets of the shareholders. Be Our Guest, Inc. is not a start-up company, and it has been in operation aback 1983, so there is a akin of abundance alive that this aggregation has been about for over 10 years and has been accidentally acknowledged during this time as well. It has abundant administration in abode who anniversary contributes able and adulatory adventures forth with a akin of expertise.
This aggregation is focused and apprenticed to accommodate the best anniversary they can aural the industry, and they accept been adored for it with the 1997 Small Business Close of the Year. While Be Our Guest may not be the greatest risk, there are accoutrement in abode and aspects of the aggregation that accomplish Be Our Guest an able accident for the bank. Tudor Aggregation Five Folio 9 3. How abundant absolute coffer costs will the aggregation charge at the end of 1998, including both the concise borrowing beneath the coffer acclaim band and the outstanding bulk of the appellation loan? For convenience, accept that 1998 sales are $3,000,000. ) In adjustment to appraisal how abundant absolute coffer costs the aggregation will charge at the end of 1998, there are two accessible means of forecasting the banking after-effects in agreement of antithesis breadth and assets statement. The assay charge booty into anniversary the awful unpredictable, melancholia attributes of the business. Due to this seasonality, there is aerial akin of ambiguity whichever forecasting adjustment is applied. The aboriginal adjustment is to appraisal the approaching assets anniversary based on a trend or accumbent analysis.
In this specific case, a admixture anniversary advance amount (CAGR) for anniversary annual on the assets anniversary was affected for the years 1994-1997. With commendations to revenue, $3,000,000 for 1998 was accounted for in the calculation. This assay shows an admission in G due to the abnormal admission in G the antecedent year (1996-1997) affecting the CAGR in 1998. Consequently, the assets anniversary shows a accident in the Net Balance aback applying this method. The added adjustment is to annual the costs of acquirement based on the allotment appulse of anniversary annual of amount on the absolute acquirement in 1997 (vertical analysis).
This analysis, according to us, seems added analytic in itself and additionally leads to a abundant added absolute angle for 1998 (Net Balance of $99,408). The aftereffect would be acceptable for the business. Two added accomplish are all-important to anticipation the costs needs for the year 1998: Tudor Aggregation Five Folio 10 The aboriginal footfall is claim of the band of acclaim for the concise liabilities ($140,000+$3,498). The added footfall is bigger administration of the seasonality, abnormally for abode 1 and 4 which are the best chancy abode for the business.
Given that Net Balance are about $68,096, the band of acclaim needs to awning the aberration ($75,402). Demography into application the seasonality, affected as operating banknote breeze (refer to case – covenants), there should be no clamminess problems anniversary 1998. The banknote breeze accessible at the end of 1998 actually covers the losses in Q1 and Q4. The aggregation should accumulate the band of credit, because debt is incurred aloft the acclaim band alone aback used. The management, however, should alone use the acclaim band aback actually necessary.
Finally, the aggregation should catechumen about $75,000 of the $140,000 of the band of acclaim into abiding debt because it will amount beneath in agreement of interest. In addition, the aggregation should admission the abiding debt appropriately (based on the action apropos approaching investments; see acknowledgment to catechism 4). Assuming that the abiding accommodation is amortised in a connected manner, with about 25% adjustment per year as “current instalment of appellation note”, apparent to be the aforementioned amount as 1997 ($75,268) which is affected based on the appellation agenda payable beneath accepted instalment of $168,043 for 1998.
Tudor Aggregation Five Folio 11 Proposed actuality is a two-step access for costs the investment: The aboriginal footfall is to admission accession abiding accommodation of $200,000 to change and advance the buzz and IT systems. This will advance to a bigger position to adjudicator the accepted bazaar needs to alter and aftermath a able action for the business in agreement of efficiency, advantage and abiding outlook. Already this footfall is accomplished, by 1999, the aggregation should admission yet accession abiding loan.
Regarding the achievability of an acquisition, if Be Our Guest makes an acquisition, it can do so through a leveraged-buyout. Therefore, demography on the debt of the aggregation actuality acquired and allotment the alternative allotment of the accretion by affairs allotment of the disinterestedness of Be Our Guest (Following the banking restructuring and the admission in ability the amount of the banal will increase). Asking for a accommodation for an accretion today would not be reasonable, nor is it acceptable that the coffer would accede to affair the loan. Currently, the banking ratios of the aggregation do not absolve an acquisition.
Therefore, starting off with a abate accommodation to advance the aggregation active in agreement of ability and basement will be of greater value. In absolute the aggregation should booty the afterward abiding loans: $75,000 (line of acclaim adapted into abiding loan) $200,000 (investment) $168,000 (outstanding abiding loan) Absolute abiding loans in the Antithesis Breadth by end of 1998: $443,000 As already mentioned before, the band of acclaim should abide accessible at the aforementioned akin as afore ($140,000) aback it is alone paid for if acclimated (expected 1998: actually available).
Tudor Aggregation Five Folio 12 4. What should Al Lovata and Simone Williamson ask for aback talking with the bank? If the aggregation needs added coffer financing, should the admission be provided by an admission in the acclaim line, or should the admeasurement of the appellation accommodation be added to accommodated the need? Should they ask for some alleviation or change in the accommodation covenants, decidedly the claimed guarantees that they accept provided at the bank’s request? Al Lovata and Simone Wiliamson should access Anne Granger in a assured way.
Be Our Guest’s antithesis breadth is adequately able and adequately liquid, the assets anniversary shows signs of advance and the aggregation is about accomplishing well. Hence Be Our Guest can booty a assured angle to altercate the covenants aboveboard with the coffer in adjustment to ability some alleviation on the austere terms. They charge to assignment with the coffer to: *lower the amount *review the requirements of claimed guarantees for the accommodation Be our Guest Inc. can accede the achievability of activity to accession coffer if State Street holds their arena on these austere covenants
Considering the accepted and able cachet of the antithesis bedding and assets statements it is astute to accept that Be Our Guest, Inc. would not accept abundant adversity to accretion a new lender who would accede on different, added airy agreement of covenants. The aggregation mainly needs the band of acclaim to accounts the melancholia furnishings of Q1, which could be bargain by a solid advance or amplification plan or alone alteration the company’s HR action apropos the full-time agents during Q1. Tudor Aggregation Five
Page 13 For example, they could abate the staff’s hours, which would accumulate them on a full-time application abject but would abate the G costs for this authentic quarter; or they could put the full-time agents on a cardinal circling plan which incorporates the poor business of division 1 but leaves options in case of abrupt business in this time aeon which would additionally abate the accepted G costs and still leave the aggregation in a able position to handle concise apprehension business.
Regarding the absorption for outstanding borrowings on the acclaim band as able-bodied as the absorption for the abiding loan, it has been anxiously covered and there is no actual acumen to accept that this will change. Any approaching admission of the abiding accommodation to drive the advance of the aggregation in agreement of business amplification or accretion assets can alone be interpreted in a absolute way seeing that the revenues accept apparent to admission with all antecedent growth-measures.
State Street coffer should recognise the company’s solid administration foundations and the well-going business over the able years and accumulate their able continuing with Be Our Guest, Inc. Lovata and Williamson appetite to be able for approaching growth. The way to advance has been articular in two accessible options, commutual an accretion or accretion their artefact line. Both of these strategies charge to be accurate by a connected continued appellation plan in adjustment to accounts their advance needs.
Pertaining to this reason, for allotment their advance they should ask the coffer to extend their continued appellation accommodate (clearly cheaper than a revolving credit) and additionally ask to re-negotiate the absorption amount (too aerial abnormally to be a “prime rate”). Additionally anniversary advance plan in the aboriginal few years needs backbone and adaptability in agreement of managing losses, appropriately it would be acute to analysis Tudor Aggregation Five Folio 14 at atomic allotment of the accepted covenants, like prohibiting two afterwards abode of net losses and alienated a net accident for any budgetary year.
Taking into anniversary that they are in a able banking position and that the added money they would charge is for approaching expansions and advance of the company, refinancing its absolute debt to admission bigger terms, could be actually reasonable. Additionally the aggregation has a adequately able antithesis breadth and assisting growth, so it has affluence of acceding ability to accommodate a bigger accord with the bank. The alone abrogating annual is accustomed by the abatement in the aftermost 4 years of the “net income”, but afresh it is an affair appropriate by a agreement (distribute added than 50% of the balance to the principals).
It is allegedly the best abortive and best alarming of the account as it is arch the owners to administer the accumulation thereby accretion the G costs. Definitely, accession acute aspect is about clamminess pain, abnormally for an already acclimatized business as that of “Be Our Guest”. In this case they should accede converting some of their revolving acclaim to appellation debt (cheaper) authoritative band of acclaim available, which is currently actually acclimated (coherently to the 1998 accepted banknote position, acknowledgment 3).
In this faculty the best accord for “Be Our Guest” adeptness be to advance in a business that generates acquirement during accepted apathetic seasons and eases the firm's assurance on acclaim for alive capital. Appropriately alike if the tents business could be allegedly alien to the “Be Our Guest” business archetypal this business amplification should be taken into consideration. It is not alone a new antecedent of accumulation but will additionally accredit profits for the accepted business in the apathetic seasons (tents are mainly set off in the backing and algid seasons like abatement and winter).
However, they should be able to analyze amid continued appellation debt and abbreviate appellation band of credit, application the aboriginal one for investments and the added one to administer clamminess affliction periods. Tudor Aggregation Five Folio 15 Leaving abreast its accessibility in general, the attributes of the abiding debt, makes the development of the banking plan easier by accouterment the exact approaching acquittal scheme. On the adverse the band of acclaim is acutely advantageous to administer clamminess affliction periods but should be paid aback bound or adapted in appellation loan.
Finally while refinanced coffer loans for now may be able to accounts the company, it may not be abundant for approaching affairs and appropriately barrier the amplification (current debt/tangible account arrangement is already college than 1). They should accede a altered way of adopting funds e. g. from affairs equity. Reviewing the claimed guarantees is axiological in adjustment to allure new broker and to administer the aggregation differently. Be Our Guest was created as a business abstraction and for abounding years ran added like a ancestors business but now it is a assisting close that should be managed in agreement of ability and profitability.
This leads to two all-important actions: one by the State Bank, to get rid of the agreement including the claimed agreement of the accommodation by the management; and added by Be Our Guest, Inc. to analysis their aggregation status. In agreement of the State Bank, it will be capital to argue Anne Granger to abolish the agreement apropos the agreement for the abiding loan. From the point of appearance of the administration of Be our Guest, Inc. they charge to analysis their aggregation status. Alone aback they auspiciously abstracted the business from the family-business access on which agreement Be Our Guest, Inc. as founded, they can allure approaching investors. Tudor Aggregation Five Folio 16 Exhibit 1 – Anniversary Assets Statements (1994-1997) Tudor Aggregation Five Folio 17 Exhibit 2 – Anniversary Antithesis Bedding (1994-1997) Tudor Aggregation Five Folio 18 Exhibit 3 – Anniversary Assets Statements 1997 Tudor Aggregation Five Folio 19 Exhibit 4 – Anniversary Antithesis Bedding 1997 Tudor Aggregation Five Folio 20 Exhibit 5 - Forecasting Tudor Aggregation Five Folio 21 Exhibit 6 – Anniversary Ratios Tudor Aggregation Five Folio 22 Exhibit 7 – Anniversary Ratios Tudor Aggregation Five Folio 23
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