After a decade of operation, Stephanie and co-owner Steve Thomas were faced with a difficult situation. With a strong desire to further grow and establish their business, Bubble & Bee Organic sought additional capital to achieve higher long-term growth for its business.
Robert M. Patterson and Carol J Cumber
Harvard Business Review (NA0449-PDF-ENG)
September 01, 2016
Case questions answered:
- What are the Pros and Cons of retaining 100% control? Explain in detail.
- What are the advantages and disadvantages of rental space?
- Provide a financial ratio analysis of Bubble & Bee Organic.
- Are there any additional factors to consider in deciding to take the loan?
- What is your final recommendation to B&B Organic?
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Case answers for Bubble & Bee Organic: The Need for Pro Forma Financial Modeling
This case solution includes an Excel file with calculations.
Executive Summary – Bubble & Bee Organic
Founded in 2005 by Stephanie Greenwood, Bubble & Bee Organic (B&B) became a new entrant into the personal care product industry due to Stephanie’s desire to develop organic personal care products that benefited her own health issues but others who faced similar conditions.
After a decade of operation, Stephanie and co-owner Steve Thomas were faced with a difficult situation. With a strong desire to further grow and establish their business, B&B sought additional capital to achieve higher long-term growth for its business.
Both Stephanie and Steve recognized two viable options to expand their business moving forward. The following consisted of renting additional space, an additional 4000 square feet, or obtaining a loan in which they would purchase a new facility for approximately $1,100,000.
Reluctant to approach an investor, both Stephanie and Steve had no intention of potentially giving up any shares of the business they had worked so hard to develop.
To assess which option worked best for the owners, a pro forma financial model was created to further determine Bubble & Bee Organic’s future profitability.
Four scenarios were used to develop and evaluate the performance of the scenarios. The scenarios are as follows: renting the building with 15% of anticipated growth in revenue, renting the building with no growth in revenue, purchasing the building with 15% of anticipated growth in revenue, and purchasing the building with no growth in revenue.
While both options contain both positive and negative outcomes, we can further assess each scenario and determine what the ideal decision to implement for B&B’s future success is.
It is worth noting that while it would be optimal for Bubble & Bee Organic to choose the outcome that represents 15% of anticipated growth, this circumstance may not always present itself.
Therefore, we must take into account both the possibility that the growth of the business will achieve its desired target as well as the possibility that it may not experience growth at all.
1. What are the Pros and Cons of Retaining 100% Control? Explain in detail.
As mentioned in the case, Stephanie and Steve were extremely apprehensive about giving up ownership of the business they had worked so hard to grow. While an investor would improve B&B’s current financial state, the possibility of losing say in the company’s operations would play a significant role in their decision-making process.
Nonetheless, we must dissect the possibility of both alternatives to determine whether neglecting an investor is a well-made decision. As mentioned previously, by bringing upon an investor, Bubble & Bee Organic will have minimal difficulty expanding its operations.
As opposed to using cash flows as they had done previously through the years 2005-2015, there would be little…