Introduction
The report presents a case about Be Our Guest Inc., which has been established by Stephen Lizio in 1983to provide catering services to other catering businesses. Initially, the company offered short time manpower solutions to the catering services business and later on the company introduced renting caterers’equipment such as chairs and tables, which resulted in tremendous success for the company. Furthermore, as the business grew, Lizio hired a part time financial consultant as full time Chief Executive Officer and Lizio himself became the Chairman of Be Our Guest Inc. in the year 1988. During the same year, food industry sponsored an event “Aid and Comfort” that gave an opportunity to Be Our Guest Inc. and they earned great revenues by serving that event in the form of renting catering services and caterer equipments. During the year 1989, Simon Williamson was hired as the management executive and she was responsible for the management of daily operations, meanwhile, she used her past experience in order to improve the efficiency of organization’s operations. Key customers of Be Our Guest Inc. were those engaged in provision of catering and event management services such as event planners, catering firms and large hotels. Lizio had been successfully running the business operations and reached annual revenues of $1 million in the year 1991. Furthermore, its successful operations were recognized by Boston Chamber of Commerce (BCC) when it was recognized by BCC as a “Small Business Firm”of the year 1997.
Inventory of catering equipment was managed through a computerized system and inventory was divided into divisions according to the type of catering equipment. Furthermore, each order for the delivery of catering equipment was handled by the head of division and collection and delivery of equipment at the eventsite was the responsibility of driver.In addition to this, Be Our Guest Inc. was situated at the center of Boston city and this competitive advantage enabled the quick and easy delivery of equipment to the event location. However, Be Our Guest Inc. was a full service category firm except the provision of tent because of the high labor cost and low profit margins on tent orders.
Problem Statement
The management is concerned about the size of credit line that they should request to the bank for next year. Meanwhile, the management is considering whether some of their borrowing should be shifted from short-term borrowing under the line of credit to the more permanent financing provided by a term loan and they are also concerned about the covenants imposed by the bank.
Analysis
Analysis of the past performance
The company has enjoyed tremendous success over the last four years and it succeeded to generate sufficient revenue by providing enhanced quality to their customers and by delivering them enhanced customer care, which tend them to report an increase in average revenue by 15% for the next period. Further, our analysis in Appendices 1 also shows that the company reported an average increase in delivery income by 5%.
The company reports an increase in gross profit margin from 54% to 56% from 1994 to 1997 but on the other hand, the company failed to generate sufficient net profit margin and it has decreased from 8% to 3% from 1994 to 1997 because the company failed to control its general and administration salaries and it do not increase with an increase in sales. The company reported general and administration expenses as a percentage of sales as 21% for 1994 and it has further increased to 32% in 1997.
Review of the borrowing relationship
Bank will only be interested in lending the funds to Be Our Guest Inc. when it complies with the requirements of the bank and when they would be able to pay principal and interest payment on time. The company entered into relationship with State Street Bank in October 1996 and it was justified that the bank representatives were impressed with the quality of the management and profitability of the firm.
The bank required that the cash flow to debt service ratio shall not exceed by 1.25 and the company succeeded to comply with the bank’s term because the ratio represents 0.88:1 and 0.97: for 1996 and 1997 respectively, which indicates that compliance with the bank’s requirement will impress them, which will ultimately contribute towards increasing the limit of the company. Further, the company failed to comply with debt as a percentage of tangible net worth and it reports (36.04) and 5.42 for 1996 and 1997; whereas, the bank required that this ratio shall not exceed by 2.00:1. It may be possible that the bank may raise some concern about this covenant..................
This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.Be Our Guest Case Solution
Be our guest is a fast growing company with substantial equipment rental seasonality in its revenues and profits. In the spring of 1998, senior management evaluates its financial plans in preparation for a meeting with the company's bank. Case provides an opportunity to predict financial needs and consider the appropriate structure and amount of bank loans. "Hide
by Dwight B. Crane, Penny Joseph Source: Harvard Business School 13 pages. Publication Date: April 5, 1999. Prod. #: 299001-PDF-ENG
Related Case Solutions & Analyses:
Navy SEALs: Selecting and Training for and Elite Fighting Force
Moving Beyond Marketing: Generating Social Business Value Across the Enterprise
How Strategic Is Your Board?
Havas: Change Faster, Multimedia Case
Want to Innovate? Then Act Like a Start-up
Argo Interactive (B): Surviving in the Roller-Coasting Mobile Industry
Ten Tools for Design Thinking
Government Games: Understanding the Role of Government in Business Strategy
Central America: Strategy for Economic Integration, Spanish Version
Building a Cluster: Electronics and Information Technology in Costa Rica, Spanish Version
