In 1981, the Clarkson Lumber Company was found as a partnership between Keith Clarkson and Henry Holtz and is one of the largest providers of door, molding, and other wood related products to general contractors and contracting companies within the Miami-Dade County area. Its success over time is attributed to their effective pricing strategies against their competitors. Two years after Hurricane Andrew, Mr. Holtz decided it was time to leave South Florida in 1994 and allowed his partner, Mr. Clarkson to buy him out. Mr. Clarkson’s dilemma was that he nor his company, The Clarkson Lumber Co. had the $200,000 on hand which both agreed Mr. Holtz’s share was worth. To give Keith the time he needed to secure the finances, Henry allowed Clarkson to pay the $200,000 in semi-annual installments with interest. During the repayment period, the company experienced rapid sales increases and desired to substantiate the future growth.
Until recently, financial needs of Clarkston Lumber were met through various means. They maintained low operating expenses, used trade credits, and their line of credit with Suburban National Bank. As the Clarkson Lumber Co. desires to keep up with its current sales trends, it finds itself tight on cash. Clarkson currently purchases inventory from its vendors in large quantities, requiring large amounts of capital to fund these purchases. Mr. Clarkson feels that if he takes advantage of an additional 2%, Net10 trade discount offered by his vendors for quick payment, he increase his profitability and rectify his current cash flow situation. Unfortunately, Clarkson does not have the ability to capitalize on these discounts, as the company is currently strapped for cash.
As of today, the company is utilizing all of its trade credit, delays payments to their vendors, and has maxed out its current borrowing on their line of credit at $399,000, currently offered by Suburban National Bank. In early 1996, Mr.... [continues]
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