Background
- The Genesis Bank of Canada appointed Scott Miller as the manager of commercial accounts in 2010.
- This was at a time when the Canadian economy was struggling to be stable.
- Several new and old customers were seeking loan approvals from this bank facility and as such, Miller had to be very keen before approving the requests.
- Jacob Hessels was one such customer. He was the founder of Envy Rides Inc.
- In order to carry out partial renovation of his dealership, he needed $60,000 and another $450,000 sum of working capital.
As he was preparing to meet with Scott Miller, Hessels was quite pessimistic whether his request will eventually be accepted. Nonetheless, he needed to obtain a rather quick feedback before contemplating the next line of action.
The dream to start up Envy Rides Inc.
- Hessels began his career in business as a salesman.
- He mainly specialized in business start-ups.
- Before attaining the age of 40, he was already a well known talented business enthusiast across a number of industries.
He always had the desire to employ himself, enjoy the benefits of being a boss and set his own working schedule.
Personal attributes of Hessels
- Amiable and charismatic.
- He was visible in almost every task he performed.
- He immensely excelled in selling cars for a period of ten years.
- He had vast experience as a salesman.
- His dealership mainly sold recreational vehicles within the motorsport category.
- After working as a salesman for that long, he joined Wegz Stadium Bar as the vice-president and director. He later moved to a small town in southwestern Ontario where he joined a Hyundai dealership start-up enterprise as the general manager of the firm.
- He eventually landed on a life-time opportunity to buy an existing motorsport dealership.
- The early months in the operation of his new business witnessed exponential growth. Within a period of less than one year, he had more than 20 employees down from 6.
- Boosting sales required intense marketing campaigns and Hessels ensured that his business enterprise was well marketed.
The 2008 Expansion
It was coupled with diverse marketing strategies such as:
- Massive inflatable ATVs.
- Barbecue prizes.
- Races.
- Bike wash.
- Large presence on a hit radio during the grand opening .
Demographic strategy-the grand opening campaigns targeted the age group between 18 and 35 years.
The Industry
- Hessels witnessed stiff competition in the industry ever since Envy Rides was incepted.
- His articulate and aggressive marketing campaigns did not discourage the local competitors from waging similar wars in the market.
- The immediate competitors for Envy Rides were.
- Kahuna Power Sports.
- Snow City Cycle.
- Other Honda stores.
- Apart from tough competition emanating from other market rivals, the economic downturn of 2008 grossly affected the operations of Motorsport industry.
- Consumers were no longer eying for recreational cars owing to the poor performing economy.
- The economic recession injected significant changes both in the operation and profitability of Motorsport industry.
- The sales volume for both new and used motorcycles went down considerably.
- However, banks were no longer willing to advance loans to customers owing to this high risk posed by economic recession
- Reduced spending among consumers was witnessed in the automobile industry especially when it came to the purchases of luxury vehicles.
- Seasonal fluctuations also hampered the performance of the recreational market. Most consumers were deterred from buying Motorsport goods owing to the Canadian inclement weather. The latter made it quite difficult for motorcycling to proceed normally.
The Loan Request
- Hessels direly needed the loan to undertake financial restricting of his business unit.
- The loan was necessary in order to sustain a sound working capital.
- Accounts payable would be used to fund inventory if the loan request would be rejected by the bank.
- This could be a risky operation.
He required both a renovation and working capital loan in order to cushion his Motorsport dealership against economic turmoil.
Financial Projections
- The 2010 fiscal year would experience a robust growth in sales.
- According to Hessels, sales would reach a $7 million mark before the close of 2010.
- By the end of the 2011 financial year, the sales would have increased to $8.5 million.
- The cost of goods sold at Envy Rides would remain roughly the same.
Adverting and promotional campaigns consumed a lot of finances from the company although they were bound to remain constant in the next two fiscal years.
The Decision
From the current and projected analysis of financial statements of Envy Rides, the following conclusions were made:
- For the sake of tax purposes of 2008 and 2009, earlier losses were carried forward.
- Envy failed to pay any income taxes in two financial years (2008 and 2009).
- Envy anticipated beginning paying taxes in 2010 and 2011.
- Total taxes payable stood at 25%.
Envy’s financial statements for the next two years had to be analyzed by the bank before approving or rejecting the loan request by Hessels.
