Alan Litchman and Laura B. Trust, Co-Presidents of Finagle a Bagel, own a bagel business in Boston (Parrino, Kidwell, Bates, 2012). Alan and Laura met in business school and after gaining business experience in other industries they purchased the bagel business with the intent of growing it as much as possible. They have two primary target markets: 1) retail stores and 2) wholesale accounts with large institutions. In this paper, we will briefly discuss a few of the strategies they used to manage their working capital. The owners of Finagle a Bagel were tired of working for other people so they decided to buy one new business. They have used several financial concepts to manage the financial accountability of their small business. They have controlled costs from the beginning of the process to the delivery of the product, as well as the administrative costs.
Other items that have been highlighted are the management of cash flow, payback, and the schedule of cash entries, which has allowed the company to pay its debts. They have established a good relationship with the banks in order to negotiate the time frame for payments and rate. Suppliers are also a key success factor for the company, as the payment terms are negotiated to match the flow cash. The company’s focus is to maintain its financial management so that the business may grow and return large profits. The Finagle a Bagel also has a policy of recognizing the hard work of their employees. The owners believe that managers and employees are responsible for the success of the company. Together, the company is growing in a sustainable and financially healthy way. According to Alan Litchman, when making any investment, first one has to understand what the demand for the new product is going to be, and what kind of product can be made with the new equipment (Parrino, Kidwell, bates, 2012).
Alongside his wife, Mr. Litchman explained how important it is to understand the company’s performance and opportunities to better apply capital investment in the company. They both explained, in their own words, the importance of setting up strategies and planning before putting a new product on the market. The couple also spoke about debt. Laura Trust said that debt is ‘a necessary evil’ and sometimes taking debt has its benefits if compared to finding capital through other means, such as pursuing a partner (Parrino, Kidwell, Bates, 2012). In this case they did not want to take a venture capital partner because the owners wanted to have authority when making business decisions, thus avoiding ‘working for someone else’ (Parrino, Kidwell, Bates, 2012). This shows that the owners prefer a business structure like a sole proprietorship. Lastly, the fact that interest rates have been dropping for small business also supported their decision to take on debt to invest in the company. The couple is very educated when making business decisions, as they understand that even when a company has financial resources, the business gains more by obtaining financial resources from banks with small interest rates, while allowing the resources they have to generate dividends with higher interest rates.
This is generally called borrowing ‘cheap money’ (Investopedia, 2014). Finally, credit is also discussed. They mentioned trade credit, which is the amount of time given to pay back vendors for the products bought. The longer the term, the better, as it allows time to receive revenue before having to pay the debt. This is another very important recommendation on how to properly use cash flow and avoid taking on debt. Overall, Alan Litchman and Laura B. Trust demonstrate a thorough understanding of how to manage their capital so that their small business continues to grow and increase their net profits, despite economic challenges in the community and the country.
Investopedia. (2014). Cheap Money. Retrieved from http://www.investopedia.com/terms/c/cheap-money.asp Parrino, R., Kidwell, D., Bates, T. (2012) Fundamentals of Corporate Finance, (2nd Ed) John Wiley & Sons Inc.