Lumber

1. Abstract

We have been asked to provide a report to analyze why Mr. Butler need such a great number of additional funding and determine the amount of banks loans enough to expand his business. At the same time, we will offer appropriate recommendations to Mr. Butler about the company’s business strategy and to the Northrop National Bank about the extra conditions needed on the loan.

2. Background

The Butler Lumber Company was founded in 1981 as a partnership. Then, it was restructured to be a sole proprietorship in 1988. As a retailer of lumber products, it also owns a repair business which constituted a relatively high portion of the operation of this company. Meanwhile, the repair business is untouched by the economic fluctuations and thus quite stable. Therefore, the sales prospects were favorable.

3. The Current Financing Gap

Mr. Butler attempted to increase the borrowing from the bank in the spring of 1991. The need for additional funding comes from the rapid growth in its business and the shortage of cash which affect the company’s purchase discounts.

First of all, the expansion of business especially the increase in sales will require additional assets. If the business operation remains the same, that is to say the first quarter of 1991 sales counts the same as the first quarter of 1990 to the year sales amount. The total amount of sales in 1991 will be 2.872 million. For a projection of the sales increase of 728,000 to 3.6 million, the rise in total asset will reach 153,000 given the same operation efficiency. The soar in sales will raise the cash, accounts receivable as well as inventory on the assets side. Company need to spend more the purchases. Other than the change in the variable cost, Butler Lumber may need to spend more on the salary expenses. To expand the business, Mark Butler may need to hire additional business development manager or sales person to attract more customers. Other than that, Mark Butler also need spend more on...