Be Our Guest Inc.
Be Our Guest Inc. is a Boston based company that rented equipment to caterer’s, hotels, etc. for various events. The company was growing rapidly from the early to late 1990’s, producing revenues of $990,000 in 1991 and reaching $2.7 million in 1997. There was tremendous seasonality in their business, as the business was fast during the fall and winter holiday seasons, and during the early summer months when wedding receptions and parties flourished. Because of the seasonality, it was difficult for the company to develop annual projections of revenues. Also many of their clients aren’t able to pay them right away which means they built up a large number of receivables on their balance sheet.
In the spring of 1998, the company was reviewing their financial plans in preparation for a meeting with State Street Bank. Their initial borrowing arrangement with the bank consisted of two parts, a $100,000 line of credit and a $390,000 five-year term loan. Due to a large increase in their December sales, the company requested a $40,000 increase in its credit line to finance the receivables. Therefore at the years end, Be Our Guest had a fully used $140,000 line and an outstanding balance of $318,000 on its term loan. The bank prefers that the company pay the credit line down to zero during the year, which the company was not able to do over the past year. Be Our Guest Inc. hopes to be able to finance at least 10-15% growth in its business, therefore it is important for them to be in good standing with the bank. They wondered it if was time to rethink the amount of the term loan versus their credit line. The case provides the opportunity to forecast Be Our Guest’s financial needs by considering the appropriate structure, as well and the amount that the should borrow from State Street Bank. [continues]
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