Case 24 - Custom Lumber,

Inc.

By: Justin George and Nick Gramuglia

Introduction & Background

- Dave Stamin is a warehouse manager for a furniture manufacturer

- He also runs a hobby type business called Custom Lumber, Inc.
- Custom Labor, Inc. is a lumber production business
- He wants to gradually work out of the warehouse business and go full time
with his lumber production business
- Dave is now in the process of taking his hobby type business and
converting it into an entrepreneur venture
- He currently owns some land and a lot of equipment
Introduction & Background cont.

- In order to expand his business, Dave plans on taking out a loan

- He created some cost and income estimates to begin this process
- This will allow us to assess Dave’s business regarding risk, financial
capacities, and ultimately the sustainability of Custom Labor, Inc.
Exhibit 1. Monthly Financial Records
Exhibit 2. Book Value of Assets
Exhibit 3. Additional Equipment Needed
Exhibit 4. Expected Increases in Expenses
Exhibit 5. Annual Cashflow Worksheet
Question 1

Develop a beginning balance sheet for the company using information in the
case and in Exhibits 1 and 2. Assume that the loan is used for financing the
new equipment.
 Answer 1
- For further
reference, please
see Excel
worksheet
Question 2

Develop a proforma income statement for the first month of operation using
the production, fee income, cost, and expense information in the case.
 Answer 2
- For further
reference, please
see Excel
worksheet
Question 3

Is the operating cashflow adequate to repay the loan? Is it adequate to provide

a living for Dave? How would you advise Dave in terms of both the decision and
concerning financing?
 Answer 3
- For further
reference, please
see Excel
worksheet

Based off our calculations using Exhibit 5, the operating cashflow is adequate to repay the loan. From the reading,
Dave’s loan consists of $15,724 worth of new equipment (Exhibit 3), $3000 (cash), and $2000 (supplies). After
you take the sum of those figures, the total loan equals $20,724. Therefore, Dave’s operating cashflow of
$72,112.21 is more than sufficient to repay the loan. In fact, after Dave repays the loan, he is left with a balance of
$51,388.21, which is adequate to provide a living for Dave, who has no family to support and no debt to speak of.
We would advise Dave to operate his venture full-time, and leave his job as a warehouse manager, where he only
makes $42K.
Additional Questions

1) After calculating the annual cashflow, and seeing that Dave’s business is in
good condition, should Dave even consider taking out a loan?

2) Do you think Dave is an adequate position to lay off one of his assistants?