In April 2013, Miriam and Ben Friedman were thinking about starting their own business, Grip Case Inc. Their objective was to produce and market inexpensive attaché cases. It was not their intention to compete directly against expensive cases produced by such companies as Samsonite, Hartmann, Zero Halliburton, or Atlantic. Miriam and Ben felt that if their company produced an inexpensive case (retailing at about $50), they would sell at least 15,000 units during the first year of operation. Of course, to launch Grip Case Inc., they would need to borrow from various lending institutions.

Miriam and Ben intended to approach their venture in three phases. The first phase would be a detailed feasibility study, including legal work for patent registration and additional work on the product design. The second phase would involve the preparation of a detailed investment proposal to seek the financing for the purchase of the capital assets, the working capital requirements, and operating funds needed to market the products effectively. The third phase would be implementation through production and commercialization.

Attaché cases are marketed under private brands or manufacturers’ brands. Private brands account for a smaller segment of the Canadian retail market. Most often, private brand cases are manufactured for retail outlets, such as The Bay, Sears, and Wal-Mart. Manufacturers’ brand names include Hartmann, Samsonite, Atlantic, SOLO, and Stebco.

After examining dozens of different types of cases, Miriam and Ben found that the four most important parts of the product for consumers are construction, convenience, interior, and exterior. The quality of construction of a case depends on its frame, hinges, handle, feet, latches, and locks. Convenience is determined by what the case offers, such as files and pockets. Miriam and Ben found that cases are available with a wide variety of files and pockets. How the interior of a case is divided also interests buyers. Things that buyers look for are lining, stability, and file compartments. Some attaché cases have pockets for business cards, a calculator, airline tickets, and parking-lot receipts. The exterior comes in different qualities of materials. This factor significantly affects the retail sales price. Cases are made of leather, vinyl, or moulded plastic. Good-quality leather cases are the most expensive, with prices between $250 and $800. Vinyl cases are priced between $75 and $250. The cheapest moulded-plastic case sells for about $70.

Although Miriam and Ben intend to market the three basic types of cases (attaché case, briefcase, and portfolio), they want to market only the attaché cases during the first year of operation to hold down their initial investment and production costs. The type of case that they want to market would retail between $40 and $60. The cost of production and the amount of markup by the middle parties determines the exact price. They will focus primarily on the student markets (secondary, colleges, and universities). They believe that a practical, low-priced model could meet consumers’ needs. Grip Case Inc. would sell its products directly to wholesalers and/or retailers. The exact distribution network has not yet been determined. Grip Case Inc. is to manufacture cases for private brands and sell to retail stores, such as Wal-mart, Zellers, discount stores, and drugstores. It would also sell cases bearing its own brand name: Grip Case. By selling cases at about $25 to wholesalers/retailers, and with 15,000 units, the company would be able to cover its costs and begin to make a profit during the second year of operation. The following shows Grip Case Inc.’s financial needs.

Grip Case Inc.’s condensed projected statements of income for the first three years of operations follow:

1. What questions do you think lenders will ask Miriam and Ben about their venture?
2. How many units would the company have to sell in the first year of operation to break even? When will the company break even? Is the break-even point in that year reasonable? Why or why not?
3. What type of investors or lenders should Miriam and Ben approach? Why?
4. What type of collateral would the lenders want to take into consideration?
5. How much do you believe Miriam and Ben will be able to obtain from the different financing sources?Why?

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Financial Needs Working capital Inventories Trade receivables $60,000 40,000 $100,000 Capital assets Leasehold improvements Equipment Machinery/truck 100,000 70,000 80.000 Research and development Marketing/promotion Total financial needs 250,000 50,000 50,000 Unit selling price 6 (250,000) Administrative expenses(85,000) Depreciation Finance costs Profit for the year ー2,500)