Individual Case Davie Jones Equipment Rental (DJER) is a small commercial equipment rental company located in a smaller city in British Columbia. The company has been in existence for 25 years and operates as an incorporated business with the operator and his wife being the principal shareholders, their children are the only other shareholders. At present the business employs 8 staff members, 6 of these on a fulltime basis, and many of these staff members have been with Davie Jones for over ten years. The company enjoys an excellent reputation in the community and is known as a stable and reliable independent business. The equipment rental industry: The equipment rental industry is characterized by a number of small independent firms. Generally, these firms will have some level of specialty focusing on industrial equipment, construction equipment, logging equipment etc. depending on the major industries in their area. The industry as a whole would obviously do well when the economy and their customers would do well, they would do more poorly when the economy would slow down. One newer aspect of the industry apparent in larger centers and in the industry catering to construction firms was the entrance of larger companies such as Home Depot into the industry. As Davie Jones is located in a smaller community, the presence of larger firms in the industry was not a factor in their location. The industry would rent, on a short term basis, industrial equipment that their customers would use but did not use frequently or regularly enough to buy themselves. The rental companies relied on a range of customers renting pieces of equipment on a fairly continuous basis. Generally, within the industry, a piece of equipment would have to be rented approximately 30% of the time to generate a return. If the equipment were to be rented less than that, it would not contribute to the profit of the firm. Major risks in the industry included economic downturn, incorrect inventory and poor maintenance of equipment by the company and by the customers. The industry itself is relatively small and operates as a niche in the industrial market. Davie Jones: For Davie Jones, business has been good, sales have been expanding and the company is generating a profit. Davie, the President of the firm is actively considering expansion to the neighbouring city which is also considered to be a small city. There is no similar competitor in Rainland, the city in which Davie Jones is located and a similar business in Snowland, the neighbouring city is slightly smaller and is considered by Davie to be lethargic and uncompetitive. The equipment stocked by Davie Jones is relatively new, is replaced on a regular schedule and is well maintained. The staff are knowledgeable in their field and know their customers well. The company caters to industrial clients that operate heavy industry such as saw mills, pulp mills, processing plants etc. in the area and the company has steady clients. Rainland Economy: Rainland is a coastal city which has relied for decades on primary processing industries, a port, lumber mills, a pulp mill and seafood processing plants. The town has a spectacular location leading many people to speculate that it would be a fantastic retirement community if some of the heavy industry were not located in the town. The heavy industry does not produce any toxic emission due to stringent environmental controls which the operating companies must follow but they do emit both an odor which is unpleasant and they can be quite unsightly. The processing industries in general have been complaining to government that they are unable to compete internationally due to environmental restrictions, labour costs and raw material shipping cost in the Rainland area. In recent negotiations with the union representing employees at the local pulp mill, the city's largest employer, the management of the pulp mill told the union that the firm is not profitable and will shut down without significant cuts to its labour force and government assistance to upgrade its machinery, a similar situation exists at the other processing plants in the city. Although most of the plants are owned by multinational corporations which have operations elsewhere in addition to Rainland, a review of the notes to the published financial statements of the pulp mill operator appear to confirm that it is not a profitable operation. As stated earlier, other operations seem to be in similar condition. The Ask: You have been engaged to assist Davie Jones in planning and implementing their expansion to the neighbouring town, Snowland. In order to get started on this project, you have held an initial meeting with Davie, the president and general manager of the business. During the meeting, Davie has told you that he anticipates a small bank loan but that most of the expansion to Snowland will be financed by ongoing positive cashflow from the operations in Rainland. You are quite impressed by this as it shows solid and conservative financial management. Davie, the president offers to show you financial statements for the company's last three years of operation. This is positive as it will help you to determine to a certain extent the financial health of Davie Jones Inc. When you see the financial statements, you realize that while the company is generating a healthy profit of about $250,000 per year, there are some anomalies. Receivables are averaging 6month of age, meaning that the customers are taking 6 month to pay bills. Almost all of the business of Davie Jones Inc. is with the heavy industry sector which is rumoured to be in very bad shape and over 50 % of the business is with the pulp mill which management is threatening to close. When you bring this to Davie's attention, he tells you that he is not concerned, if the pulp mill is to fail, the government will bail them out. 

Davie Jones believes that the mill is too big to fail. As a consultant engaged to work with Mr. Jones and to assist him in his business operations, what would you do? 

Required Provide a summary of the situation of Davie Jones INC. 

What will happen if the business (DJER) continues to operate as they have been? 

Explain why this is so. What options may be open to Davie Jones (state any assumptions that you are making)? Please lay out at least two alternative courses of action. 

What is your recommendation for Davie Jones to operate a successful business into the future?