Financial Analyst

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Group  Case:    Snead’s  Dry-­‐Cleaning  Company    

Sheldon  Snead’s  uncle  has  owned  and  operated  a  dry  cleaning  business  in  a  residential  area   near  downtown  Washington,  DC  for  30  years.  It  has  been  successful  enough  for  his  uncle  to   raise  a  family,  send  three  children  to  college,  and  save  enough  for  an  OK  retirement.       As  Sheldon’s  uncle  plans  for  retirement  he  finds  that  no  one  in  the  family  is  interested  in  the   business.    Sheldon  worked  for  his  uncle  during  the  summers  while  in  high  school  and  began   working  there  again  after  his  recent  layoff  from  a  management-­‐consulting  firm,  which   allowed  him  to  look  for  other  work.     Sheldon’s  uncle  asks  him  whether  he  would  like  to  take  over  the  business  and  to  eventually   buy  it.  This  is  a  good  situation  for  his  uncle,  because  he  can  continue  to  work  for  a  while  and   still  earn  money,  delaying  retirement,  and  he  can  better  plan  the  succession  of  the  business.   Sheldon  see  the  merits  of  the  situation,  too,  and  starts  to  think  about  it  seriously.     Some  details  about  the  business:  

• One  location  in  a  neighborhood  zoned  for  residential  and  commercial  activity  near   many  professional  office  buildings.  

• The  business  has  between  400  and  600  regular  customers,  and  about  800  names  in   its  computer  listing.  

• The  dry  cleaning  equipment  is  co-­‐located  to  the  storefront.  The  equipment  is  at  its   end  of  life  and  in  need  of  replacement  probably  in  the  next  3-­‐5  years  

• The  business  owns  the  building  and  land,  valued  at  about  $250,000.  There  is  a  small   improvement  loan  outstanding  on  the  property  

• The  business  profile  is  roughly  as  follows   o Income  statement  (See  attached)   o Balance  sheet  (See  attached)  

• The  storefront  area  also  requires  renovation:  new  floors,  countertops,  computer  and   point  of  sale  (POS)  equipment,  management  system,  etc.  The  total  investment  in   new  infrastructure  is  as  follows:  

o New  Equipment:  Purchase  price  $100,000  -­‐$125,000   o New  POS  equipment:  $10,000-­‐$20,000   o Renovations  in  storefront:  $15,000-­‐$30,000  

• No  family  members  are  interested  in  working  there,  and  Sheldon  will  need  to  hire   employees  at  rates  higher  than  his  uncle  ever  paid.  

• A  major  dry  cleaning  chain  has  just  opened  a  modern  establishment  a  few  blocks   away  and  its  rates  are  between  5%  and  20%  lower  than  Snead’s.  Its  cleaning  and   laundry  are  done  in  a  different  building  20  miles  away.    

As  Sheldon  thinks  about  the  business  more,  his  uncle  advises  that  he  will  need  to  expand   the  business  in  order  to  be  different  and  to  add  services  that  are  trendy.    His  uncle   recommends:  

(1) Some  sort  of  concierge  pickup  and  drop  off  service?   (2) Tailoring  and  repair?   (3) Collaboration  with  shoe  and  luggage  repair?   (4) 8-­‐hour  turnaround  service?   (5) Other?    

Sheldon  is  not  sure  about  all  of  these  recommendations,  but  some  might  work.  He  sees  a   facility  that  could  use  modern  equipment  and  that  could  handle  more  throughput,  perhaps  

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by  expanding  operating  times  from  the  normal  8-­‐9  hours  per  days  to  a  12-­‐16  hours  per  day   with  1.5  or  two  shifts  of  staff.  

  Through  an  acquaintance  at  the  office  building  where  he  previously  worked,  Sheldon  knows   of  a  small  retail  space  on  the  ground  floor  entrance  that  is  available  for  a  very  low  cost   (about  $3500/month)  and  where  he  could  set  up  a  receiving  operation  for  dry-­‐cleaning  and   laundry  that  would  be  further  processed  at  the  main  facility.     The  new  equipment  costs  concern  him,  because  Sheldon  knows  that  he  will  not  qualify  for  a   loan  and  he  would  need  his  uncle  to  remain  in  the  business  for  that  reason  alone.  He   recognizes  the  immediate  threat  of  the  discount  establishment  nearby  and  will  need  to   develop  a  plan  to  retain  his  customers  and  attract  new  ones.  He  also  sees  that  this  is  a   business  where  there  is  not  much  growth  in  scope.  He  wonders  if  there  are  any  other   subcontracting  opportunities,  but  he  doesn’t  know.    Then,  of  course,  he  will  need  to   generate  enough  revenue  to  be  able  to  buy  the  business  from  his  uncle.    He  hopes  that  in  a   few  years  of  operation,  he  will  be  able  to  qualify  for  his  own  loan  and  become  fully   independent.  His  assets  will  always  consist  of  only  the  building,  any  equipment  and  tools,   and  his  cash  flow.  From  his  experience  with  the  business,  he  knows  that  he  will  need  to   maintain  an  earnings  target  of  at  least  15%,  but  to  qualify  for  loans  in  the  future,  he  will   need  to  get  to  and  maintain  a  17%  to  20%  ratio.  

 

     

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  Other  Information  about  Snead  Dry-­‐Cleaning  Company