The McGee Cake Company: A Case Study
CASE STUDY 2 Introduction
The McGee Cake Company, owned by Doc and Lyn McGee, has been a sole proprietorship company since its inception in 2005 (Ross, Westerfield & Jordan, 2013, p. 18). A sole proprietorship “is the least regulated form of organization” and has allowed the McGee's to run their company largely as they see fit and to reap all the financial profits. However, the company's recent growth has added additional financial burdens which have caused the McGee's to revisit the company's current form of organization (Ross, Westerfield, & Jordan, 2013, p. 5). To that end, the owners have approached me “to help manage and direct the [company since its fast growth has] led to cash flow and capacity problems” (Ross, Westerfield & Jordan, 2013, p. 18). What follows is information on “the advantages and disadvantages of changing the company's organization from a sole proprietorship to an [limited liability company] as well as “the advantages and disadvantages of changing the [company's current form of business organization] to a corporation” (Ross, Westerfield & Jordan, 2013, p. 18). In addition, the McGee's have asked me for my recommendation as to which form of business organization I believe the company should undertake and the reasons/rationale behind my recommendation.
CASE STUDY 3 Key Issue
The one key issue that has led the McGee's to consider moving the company from a sole proprietorship to a limited liability company or that of a corporation is the company's recent rapid growth. This growth has presented both opportunities and challenges for the company as a whole. Specifically, “sales have exploded” since The McGee Cake Company was recently featured in “a leading specialty food magazine” (Ross, Westerfield & Jordan, 2013, p. 18). While this growth has allowed the McGee's to use the company's revenues as their sole source of income, it has increased their need for capital as they have had to hire “additional workers to meet the demand” (Ross, Westerfield & Jordan, 2013, p. 18). Also, additional capital will be needed to purchase more assets in an effort to keep up with the company's continuing growth (Ross, Westerfield & Jordan, 2013, p. 18).
Under the current business form these two increased expenditures—payroll and assets--are the sole financial responsibility of the McGee's which may cause some financial stress since their available “equity...is limited to the amount of [their] personal wealth” (Ross, Westerfield, & Jordan, 2013, p. 5). This growth has also presented the McGee's with the opportunity to enter into business with “a national supermarket chain [that has proposed] to put four of [the McGee's] cakes in all of the chain's stores” (Ross, Westerfield & Jordan, 2013, p. 18). In addition, the McGee's have been approached by “a national restaurant chain [in regards to] selling McGee cakes in its restaurants” (Ross, Westerfield & Jordan, 2013, p. 18).Again, under sole proprietorship the company may miss out on these opportunities “because of insufficient capital” to expand the business assets (Ross, Westerfield & Jordan, 2013, p. 5). For example, if the McGee's do not have the capital to purchase more ovens they may not be able to keep up with the increased demand from the supermarket/restaurant chains, potentially causing both business ventures to fail. In order for the company to capitalize on...