Cato Boldon 32, CEO and founder of Optimum Athletics, reside in the island of Trinidad and Tobago with his wife and children. The business has been in operation since 2008. He decided to start the business during the financial crisis that hit the world in 2008 due his passion for track and field.
The company has been experiencing a loss for the last two years and cash flows are beginning to tighten. A major customer owes the company US$100,000 for almost a year. He gets a salary of 5 million per annum from the business. He has savings of US$ 100,000 and his looking to invest to secure his financial future. He wants to enjoy both safety and capital gains. The government of Trinidad is currently in discussion on whether to grant small business in the manufacturing industry an incentive package. Boldon is considering his options. Should I sell the business or go back to management in a corporate enterprise. His has an Masters of Science Degree in Kinesiology.
His two children are aged 9 and 13 yrs old respectively and his wife is six months pregnant. His wife recently completed her Law Degree and is looking to called to the bar in Trinidad and Tobago in the next six months. Her husband had been contributing to her alumni Scholarship Fund for the last 5 years and wishes to continue. His father 60, is not doing well. He was recently diagnosed with diabetes. Boldon recently found out that his father has limited insurance coverage.
Boldon is concerned about his retirement and his ability to finance his children education. He wanted the business to be part of his pension plan as he wanted the company to be listed on the Trinidad Stock Exchange. He had to use the deposit that he had saved for his home ownership to fix the family car that was recently damaged by hurricane Irma.
As Financial Advisors you are to:
Decide what Mr. Boldon should do with the business (i.e. buy, hold or sell)?
Mr. Boldon is 32 years old, with a family consisting of father, wife and two kids and another child will be born in a few months. Mr. Boldon is facing a tough time, all the same it is clear that he has several responsibilities towards them and that implies he has to bear expenses. In order to meet these expenses, he must continue to hold on to the business as that is the only source of income for the family at this time.
The business was started during the time of rescission and soon once this will get stable people will be on recreational mode and his athletics business will do much better.
It must be noted that, although his wife is pregnant but she is qualified lawyer now and will be getting a job in bar council, this will support his earnings and basic needs will be catered from the same. Hence, it is the matter of 6 months almost to be managed. Also, Mr. Boldon draws the salary of $5 million which is sufficient enough for basic needs to be fulfilled for the family.
As mentioned, the government may decide to incentive schemes to small manufacturing units, this will benefit him in scaling up his business and 2-3 years down the line, all his losses will be balanced up. Focusing on increasing the sales by time may increase profits too and make operational improvements such as purchasing stock which is in high demand and moving the stock which is in low demand
The father is ill and he has limited insurance coverage of $100,000 which can be used for his treatment and his goal of investments for retirement or financial security can be done latter on once his wife gets into the job. He can use other financial modes slowly to invest the same amount.
One of the customers owes US$100,000 for almost a year. Mr. Boldon should ensure that the customer pays the money at least in smaller amounts so that there is some income for meeting the expenses he has, this will help him in getting regular flow and will help him to live a reasonable life. He could also establish a stricter credit policy to ensure that receivables are not outstanding for a large amount of time.
Mr. Boldon should keep in mind that Life Cycle teaches us, that if there is cyclical fall, there will be an upside too. He must hold his patience and must focus on scaling up business, having proper finances on paper, so that his goal of getting listed on Trinidad Stock Exchanges can be full filled.
Leaving the business and going back to a corporate enterprise would be a risky decision now as the expenses and the liabilities are more. A little bit of patience with the business by holding it for the time being will help Mr. Boldon in the long run. Moreover, he has a good amount of money as salary for himself which should be sufficient to sustain his expenses.
Overall the business may be profitable and just experiencing a temporary slowdown in business or a slight setback. Mr Boldon must build strategies to increase his income, once the fall is over and people will have extra disposable income.
Thus, the suggestion is Mr.Boldon should hold on to the business.
Based on the information above prepare a monthly budget for Mr. Boldon.