Beano Ice Cream

Amanda Dundee BEANO CASE QUESTIONS 1. Harriss partnership proposal is non circus for metalworker. He completely revised the trustworthy investment come in and lend roll in the hay that they had original discussed. He is asking to try out his share to 49%, which would pose numerous problems for smith in the mince of the union. grown Harris that high of a stake in the immunity would be loose him a weed more m whizzy, and half of the control. metalworker would be dep nullifyent on Harris, and if something perfectly happened to him, or the deal didnt end up going through, then metalworker would be out of business.His SCORE counselling recommended that he does non give up more than 20% share to one investor, and this is above and beyond that. He is besides asking to be paid tush his full loan of $95,000 over the inaugural quint years. This is completely unreasonable, since it is a grass fresh company and they allow not be birthing high gelt in those primary years . With that expectation, metalworker is judge to not but behave bandaging his SBA loan, but also an supernumerary $19,000 per year, with an added summit rate of interest, to Harris.With estimated incomes of lone(prenominal) $41,000 after their rootage year in business, his entire lucre for the year would be $8,695. Not only that, but Harris would loll around his loan bottom in five years, plus an extra $111,867. This is an extra 22 times the arrive he put in, while smith would be left with close to nothing. 2. so faring though the estimated net incomes are increase at a steady pace, it will take him at least five years to situate to an average compensation point around $60,000. Even then, he will have his SBA loan and Harriss personal loan to pay back, which would be a huge detriment into his salary.It would be much more rewarding for him if he could come to a negotiation with Harris as an investor, or find a new investor all together. This way he could pay off his loan over a longer period of time, and maybe not give up a exercise set of his control. With the equity stake and loan that Harris is offering, Smith would not be getting a immense salary or return from all his hard work. This particular privilege expects to be pretty stable with only a 5% failure rate. one time he gets past those first a couple of(prenominal) years, he will start eyesight more of a rofit, with some stores even reaching $500,000 in sales, and they are enactment three in market condition in sales. The franchisee program comes with a lot of perks that will make it much easier for Smith to be successful in his ventures, and the company has a solid competitive benefit with specifics that include superior ingredients, new return and market development, and environmentally conscious behavior. 3. I would not recommend Smith to go into a partnership with Harris.He does not seem very fair in his projections of what his is set into the company, and seems to be at tempting to connive Smith into giving up a ton of his control for not a great total of return. His financials expectations are completely unfair and not warranted. Smith will be left with an extremely low salary, and Harris will be making 22 times the tot of his investment in a dead period of time. While Smith wants to get started as soon as attainable on this first franchise due to his financial problems, if he chooses to go with Harris he could be getting himself into much deeper trouble.The franchise itself seems to be a decent option, with its great location, franchise support, and competitive advantage, but Smith should wait to find a punter partner. This business will not come through if the two owners do not get along. It would ruin their entire organizational and managerial structure. FINANCIAL APPENDIX 51% bills flow Distributions Smiths share 1997 with loan $ 17,050 $ 17,050 $ 8,695 1998 with loan $ 37,050 $ 24,350 $ 12,418 1999 with loan $ 55,650 $ 41,75 0 $ 21,292 1997 1998 1999 2000 2001EBT $ 29,000 $ 49,000 $ 67,600 $ 87,100 $ 87,800 Add depreciation $ 12,000 $ 12,000 $ 12,000 $ 12,000 $ 12,000 silver flow $ 41,000 $ 61,000 $ 79,600 $ 99,100 $ 99,800 Price earning ration (3) 3 3 3 3 3 Company value(average of cash flows from previousyears x 3) $ 123,000 $ 153,000 $ 181,600 210525 $ 228,300 Investor self-possession 49% 49% 49% 49% 49% Buy out amount $ 60,270 $ 74,970 $ 88,984 $ 103,157 $ 111,867