II. Background of the Study

The Jackson Company, located in a suburb of a large Midwestern city was founded in 1980 as partnership with Mr. Jackson's brother in law, Mr. Jordan. Six years later, Mr. Jackson bought Mr. Jordan's interest and continued the business as a sole proprietorship. The company deals with the wholesale distribution of plywood, moldings, sash and door products to lumber dealers in the local area with credit terms of 30 days and net 60 days on open account offered to customers.

Despite the good profit, the company suffered from a shortage of cash and borrowed $48M from the Suburban Bank. In the spring of 2000, borrowing money seemed necessary. Since he new one of the officers of Metropolitan Bank, he was able to present a request for an additional bank loan of $80M. The Metropolitan Bank's credit+ department made an investigation and found a lot on the company's operations, sales, customers and employees.

III. Problem

Jackson Company's necessity of borrowing 80 Million from the Metropolitan Bank

IV. SWOT Analysis

A. Strengths

• Increase of sales in the spring of 2000
• Low operating expenses
• Assets: 50 % of home
• Favorable sales prospects
• Established company
• Renewable Resource

B. Weaknesses

• Shortage of cash
• Account receivables more than half of the inventory and less than cash on hand
• The company's credit terms of net 30 and net 60 days
• No sales representatives
• 20% of sales goes to repair work
• Operations and Management style too conservative
• Bonus in 1999, too high

C. Opportunities

• Metropolitan Bank's officers
• technology

D. Threats

• Competition from other companies who are more advanced
  • Competition from low labor costs regions - China etc
    • Small population base - absence of a large local market

Conclusion:

It is our opinion that it is not necessary for the Jackson Company borrowing 80M. They can utilize what the company has. Based on their financial statements, account receivables are too high. It is more than half of the inventory. Collecting those bad debts, increases cash on hand. Total current assets on the balance sheet (97- 2000) are blotted. Notice the ending inventory on the income statement. Net worth also blotted. The company may have changed the statements a bit to be able to borrow money from the bank

Recommendation:

• Hire at least 2-3 sales representatives to be able to interact with the customers more. Hiring sales representatives can also improve the capabilities of existing individuals and help the company through transition.
• Consult an accountant, In this way, the company can produce the right financial statements
• Stick to the 2 % 10 days arrival for a faster turn over and avoidance of financial risk. More cash on hand. The company can also arrange for preauthorize checks so the payments are collected directly from customer accounts to reduce mail float and processing float.
• The company should build a “reserve” to prepare situations such as delinquent accounts. Reserves are set amounts of money that are taken out of the profits each year and put into an account specifically designed to act as a buffer against possible loses the company may incur.
• The company can put high priority on both customers and employees. But not too much. The company should lessen the employees' benefits and bonuses.
• Lessen the amount for repair. Rather, move further towards the end user, create-value added products.
• Since the operations were limited, the company may diversify the products
• Through 1997 - 1999, the company's operations and management style is too conservative. The company should be open to change through investing on Accounting and payroll software. In this way, the owner will not spend too much time on clerical work rather focus on management, marketing and distribution.
• The company should also maintain a Just-in-Time Inventory Control System. The strategy is to maintain almost no excess on-hand inventory.
• Finally, it is critical that the pricing strategy not only recognize the costs incurred by the company in creating the product, but also any costs or efforts incurred or avoided by the customer in obtaining and using the company's products