Critical In Your Analysis Of This Case Is Your Understanding

Critical In Your Analysis Of This Case Is Your Understanding Of The Im

Critical in your analysis of this case is your understanding of the importance of cash to a business. This case focuses on the impact of rapid growth on cash and the financing gap between receivables and payables; your ability to delineate the components of a cash flow statement and prepare one using the indirect method to assess the stages of business development; lastly to demonstrate your ability to understand the linkages between the choices that businesses have to raise cash and the components of the cash flow statement you have prepared. Your individual case analysis should include the following: 1. Based on information found in the case identify a minimum of three key factors that effect the success of Big City Courier. (To do this, you must consider how Big City Courier may be different (and/or the same) as their competitors; what does the business need in order to be successful?; what influences the companies financial position e.g. labour costs? Capital costs? 2. Describe the importance of cash to this business as it relates to growth and profitability. Can a growing and profitable company fail? 3. Using the indirect method and information from the case (there is enough there), prepare the statement of cash flows for Big City Courier for January, February and March 1997 and include as Appendix A. 4. Provide an analysis of the Cash Flow Statement - what were the key trends/highlights (even outliers), that the statement brought to the forefront in the operating, financing and investing activities of the company? 5. Select and calculate financial ratio's (best fit) and use to further explain the situation at Big City Courier. 6. Identify a minimum of three (3) alternatives available to Taylor to improve the cash situation. 7. Provide and support your recommendation. Ensure that you are using appropriate paragraphing in your work. Each paragraph should contain one key point, support etc... This will keep your writing concise, create a stronger framework for communicating your idea's and helps to avoid duplication of material. · Format: Adhere to a concise Business Style of Writing, factual and without opinion till the conclusion and recommendations. Best to leave out adjectives and adverbs whenever possible. · Style and organization: Headings should be used to divide and organization the various sections of your paper. · Length: A maximum of 10 pages. The Appendices are not included in your total page count. · Font: The text should use Times New Roman, 12-point font and double line spacing. · Title Page : Report Title, Student name, submission date, Instructor name. · Executive Summary : A summary paragraph enabling readers to quickly grasp the main elements of the report without having to read the entire report, is optional . · Table of Contents : Sections in the report and associated page numbers. · Introduction: Overview of the report. · Purpose: Summary as to why you are writing this report in relation to the situation presented. Include the problem statement and summarize what you are attempting to accomplish through your analysis, and what you are communicating via the report. · Analysis of the Situation and Alternatives: Critical assessment of the situation presented, perspectives considered, factors impacting the assessment of the situation, and the possible alternatives considered in the analysis. · Conclusions: Summary of the main implications arising from your analysis. · Recommendations: What recommendations follow as a result of the problem determination and its analysis? · Appendices: Those tables, charts, references, technical diagrams, computations, and other supporting documents that speak to the situation and its analysis. The Appendixes are lettered rather than numbered (Appendix A, Appendix B, etc.), and listed in the table of contents. Appendices are referred to at the appropriate point in the body of the report as 'Appendix x'. S w 9A97B009 BIG CITY COURIER Michelle Theobalds prepared this case under the supervision of Professor Murray Bryant solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (; fax (; e-mail [email protected] . On Monday, April 7, 1997, Geoffrey Taylor looked over the accounts of Big City Courier (BCC) for the period January 1 to March 31, 1997. Geoffrey was the owner and manager of BCC, which began operations almost two years ago in Toronto.

In general, he was quite pleased with the company’s performance to date. However, he was concerned about BCC’s cash position. He had to pay his drivers on Friday, and BCC’s overdraft was dangerously close to the limit set by the bank. Geoff wanted to understand the reasons for his company’s negative cash position, and to develop a plan to rectify the situation. THE COURIER BUSINESS Courier companies provided delivery services for documents and small packages. Two basic levels of service were offered. Expedited services delivered time-sensitive items within the same day for local deliveries or overnight for inter-city and overseas deliveries. Within a city or region, couriers walked, rode bicycles, or drove cars or small vans to make pick-ups and deliveries. Air transportation was the primary mode used for delivering time-sensitive shipments to distant cities and countries. For less urgent deliveries, surface courier services were slower and cheaper, and usually delivered within two to eight days. The courier industry consisted of three main groups: large corporations, small businesses and independent operators. In general, the large corporations, such as Purolator, Federal Express and United Parcel Service, specialized in overnight delivery to national and international destinations. These companies operated large fleets of vans, cars (and in some instances, airplanes) and made large capital investments in sorting and tracking facilities. There were many small businesses with less than $1 million of sales per year in the industry. Primarily, they provided same-day service within a city or region, using the vehicles of their employees or independent operators. The capital investment required to start a small courier business was modest: radio equipment and office space were the major up-front expenses. Independent operators subcontracted their services to the courier companies. They provided local pick-up and delivery services within a city or a region. They provided their own vehicles, or worked using bicycles or on foot. Independent operators were usually paid a fixed percentage of the cost of the delivery. A ut ho riz ed fo r us e on ly in th e co ur se F in an ci al M an ag em en t a t U ni ve rs ity o f G ue lp h ta ug ht b y M el ni ck , L . fr om A ug 2 5, to D ec 2 5, . U se o ut si de th es e pa ra m et er s is a c op yr ig ht v io la tio n. The courier industry was very competitive, and was dominated by the large corporations. It was estimated that over two-thirds of annual sales accrued to approximately 30 large corporations, a small fraction of the over 2,000 courier companies operating across Canada.1 The small companies battled for the remaining business, often undercutting their competitors to gain a new customer. The major clients of the courier industry were service organizations (60 per cent of total sales), particularly wholesalers, retailers, law offices, consultants and financial institutions.

The general public only accounted for approximately one per cent of total industry sales. The economy and technological advances had a major effect on the industry. During periods of economic growth, couriers prospered as their clients experienced increased demand for their products and services. On the other hand, the increased usage of the Internet, e-mail and the facsimile machine had negatively affected the courier document market. In general, courier companies had adapted to the changes in the environment by seeking new markets (e.g., catalogue shopping), providing additional services to customers (e.g., faster delivery, delivery confirmation of packages) and minimizing administrative expenses.

Prior to BCC, Geoffrey worked as a driver at a courier company in Toronto for a few years. Eventually, the owners of the company, wishing to retire, offered to sell the business to Geoff and his wife. After several months of negotiations, the deal was cancelled because of a disagreement over a legal liability. Geoffrey decided to start his own business, and on May 1, 1995, Big City Courier was launched. He leased office space in Etobicoke, Ontario, and negotiated an overdraft facility of $14,000 (fully secured) with his bank.

BCC started with one driver, an office manager/dispatcher, and Geoff to oversee the operations. At the end of the first week, BCC had made only $300 in sales. However, by the last quarter of 1995, BCC collected an average of $3,200 per week. For the eight months ended December 31, 1995, the business made sales of $76,600 and a net loss of $17,800. In 1996, BCC expanded rapidly. Geoffrey hired an experienced salesperson who added several new customers to the client list. Gaining a new customer usually involved visiting the potential client, discussing pricing and delivery zones, and then finally leaving a rate sheet and several waybills with the client. Several follow-up calls or visits were made after the initial contact. Finally, if the client became a regular customer, pre-printed waybills (with the client’s name and address) would be sent to them for their convenience. Many times, BCC gained new customers when the clients’ existing courier services failed to make a delivery. Hence, reliability and on-time delivery were crucial in order to retain customers. When asked about the competitive environment, Taylor commented: A potential customer could call 10 courier companies and offer the delivery to the first courier to arrive. This business is so competitive, that all 10 couriers would send drivers for the delivery! Also in 1996, several additional drivers were contracted, bringing the total number of couriers to 12 by the end of 1996. For the year ended December 31, 1996, BCC had sales of $303,500 and made a net profit of $26,800.

Financial statements for the first two fiscal years are shown in Exhibits 1 and 2. The company’s major expense was the drivers’ commissions, which were 65 per cent of the delivery fee. The drivers were paid every two weeks. Customers were also billed every two weeks; however, many clients did not pay their bills on time. BIG CITY’S CASH POSITION Geoffrey had high expectations for his company’s performance in 1997. BCC had already experienced some weeks with over $10,000 in sales in the first quarter and profits were increasing. Financial statements for the first three months of 1997 are shown in Exhibits 3 and 4. However, despite the good results, the company had a persistent cash flow problem. Geoff had to call his banker a few times for permission to temporarily exceed BCC’s overdraft limit so that the drivers could be paid.

Fortunately, the bank had accommodated his requests in the past. Exhibit 5 shows the bank transactions for the first quarter in 1997. Geoff felt stifled by the tight cash position. He knew that if he could hire another salesperson, his business would grow even faster. He wanted to completely understand the reasons for BCC’s cash flow problems, and devise a suitable plan of action to ease the situation.