The Health Nut Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Introduction:

The health nut is a small business of multi-line NHP stores located just off Main Street in Grand Bend, Ontario. The store consists of 500 square feet of retail space offering a wide range of NHPs, including supplements, vitamins, a limited range of basic foods, crystals, jewelry, gemstones, clothing, natural skin care products, custom fit healthy bras and a limited range of health books. Bury also continued his psychotherapy and energy therapy practice from the retail premises.

Situation analysis

Customers:

The health nut is servicing in a small country town, servicing about 10,000 people. The town is of such a nature that the population of the town fluctuates with the tourist season. The effect of fluctuation can be from 10,000 people to 15,000 people. The tourist season starts from June through to the end of August.

The customers of health nut were mostly female and married women living in the town. This typical customer type is similar to the industry and they are the main customers of this industry.

Entrepreneurial Experience:

The two partners Bury and Bregmann were not so experienced to manage a whole business on their own. Bregmann used to manage a natural health retailer for 3 years and Bury used to manage his own practice of psychotherapy and energy therapy for many years. Bregmann has been successful in returning a failing store to being successful in the past.

Sales Estimates:

In making a plan for the business to acquire both,Bury and Bregmann were too optimistic as they overestimated the sales and were hoping to get more than double of the sales than the current. They planned to increase the working hours of the store from 31 hours per week to 52 hours per week. This made them believe that they can also increase the sales by 50% than the current sales.

Pricing the Business:

When negotiating the price for the business, both Bury and Bregmann ignored the financial debts of the business and negotiated the price of the business on the basis of the inventory held. The inventory was initially priced at $28,000 at book value, which was later on checked and was valued at $22,000. This was the final price set for the business based on the inventory valuation.

Financing the Business:

To finance the business, Bregmann and Bury invested $11,000 for the business. They estimated that they would be required an additional amount of $40,000 to fund the startup of the business. Both Bury and Bregmann first approached SLBDC; they were offered $28,000 by the bank which was declined by both them.

After declining the offer by SLBDC,Bury and Bregmann approached a local bank which provided them a loan of $40,000 at a high personal credit ratings and the interest rate was also higher than the normal commercial rate.

Operating Health Nut:

Operation of the business in the first year started with enthusiasm and passion. The average sales of the first few weeks were above the average sales of health nuts. The average sales increased to $1500 per week. However,this was not even half of the sales planned by Bury and Bregmann.

The second year of the operations was not as good as planned by Bury and Bregmann. The sales dropped in the first few months of the year. The reduction in sales ended with the start of April and the store started to gain its sales back to normal. Sales started to in creaseand the entrepreneurs started receiving the benefits from their labor.

By the end of second year the store expanded from 500 square feet to 800 square feet and by the end of the year, they both invested $16,000 in the business making the total investment up to $27,000. They managed to repay the business loan by $6,000 by the end of the year.

In the third year of business, the business was not generating enough revenues to meet the operational expenses of the business and with the illness of Bury; Bregmann had to bear the additional stress of his work as well. The business was facing severe shortage of cash for their operations.The Health Nut Case Solution

The Bad news:

The bad news for the business was that they were running out of cash and the business was not expected to improve till April.Also,the local bank declined the request of Bregmann for the release of theloan.........................

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