Be Our Guest Case Summary

In: Business and Management

Submitted By Skui
Words 612
Pages 3
Samuel Kui
Section 0501

Be Our Guest

Be Our Guest, a Boston based company, is a rapidly growing equipment rental company with substantial seasonality in its revenues and profits. For years, the company has been renting party supplies and furniture to caterers, event planners and hotels; it has also managed to grow gradually in a very volatile and seasonal business. The founder, Stephen Lizio and co-owners Al Lovata and Simone Williamson found it difficult to fund daily operations because of seasonal cash shortages. In 1996, the company had secured a $100,000 revolving line of credit at the prime rate plus 1.5%, and a $390,000 five-year loan at a fixed rate of 9.25%. By the end of 1997, the loan outstanding balance was reduced to $315,000 and the monthly payment is more than $8000. Many of Be Our Guest's customers had followed up their annual holiday rush, then party-equipment rentals peak, with their annual winter slump, leaving them unable to pay their bills until late spring. Holiday seasons in the fall and winter typically accounted for half of the company's annual revenues and the size of the seasonal rises is unpredictable. Trying to finance such sharp swings in demand has been one of the biggest challenges that the owners had to face. Although the company's annual revenue from 1995 to 1997 had risen 49% to $2.7 million, net income for 1997 had declined 37% to only $88,000; the decline was primarily attributed to large payouts and was taking it as salary instead of dividends to comply with a covenant of their loan agreements. The borrowing restriction prohibited them from distributing to themselves and any other company shareholders more than half of the company's annual earnings. Over the three most recent years, the company's annual salary expense and dividends had nearly doubled to $901,000. Be Our Guest can raise money right away…...

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