Hindman & Company Harvard Case Solution & Analysis

Hindman & Company Case Solution 

Cash Requirements

If Hindman wants to expand in the industry by licensing the franchises, then on average 204 new franchises would be opened in coming three years.Currently., Jiffy Lube has 93 oil changes centers, though the company has extended the number of franchises, because the company is using its original strategy of franchising, rather than operating oil change service centers. Jiffy Lube has sold all company owned oil change centers to reduce the costs, as well as it has freed the management to spend time on selecting and selling new franchises sites.

The company now depends on the royalties and rental income, because it sold all its wholly owned oil change centers. Due to the dependency of the company, it needs to quickly increase the number of franchises. The company has to come up with its original strategy, and if it sells the franchises as projected,then it will require a huge amount to finance the real estate of the site because financing the real estate and construction will give aboost to franchising selling.

On the other hand, the company needs to purchase the land and construct it accordingly with the total cost of land and construction, which is $300,000. Its revenues will increase because of franchising, as well as the company will earn in rental, franchising fees, and royalty fees.In. order to forecast the revenues and expenses of Jiffy Lube, the forecasted cash flow has been generated from the year 1984-1986. See Exhibit 2.

Cash Burn Rate

Cash burn is a rate at which the company uses its cash over time. It is the rate of monthly negative cash flows that a company spends before positive cash flows are generated.

Finance to Jiffy Lube

In 1983, Jiffy Lube was suffering from losses. It sold all its owned oil change stations, whereas, currently, it has 96 franchises only, and it highly depends on the rental and royalties, therefore it should finance by private placement.Furthermore, investors also know that Jiffy Lube is an emerging company, and it just needs investment to use its name, and a good brand image in the market to sell the franchises countrywide.

Jim Hindman needs to finance the company in the following year to meet the projected expansion of selling on average 204 franchises in three years from 1984-1986.For the cost of new expansion see exhibit 1.

Business Opportunity

The franchisor can finance the real estate and start-up cost to the franchisee, whereas the franchisee will pay only 5% of the gross sale as royalty, and rent.Further more the oil change station’s revenues can be $400,000-$500,000 initially, therefore an old center will generate more revenues.On the other hand,the franchisor has to invest in station’s real estate and cost of construction, and start-up as well with approximately $400,000 cost, after that the franchisor will get royalty 5% of the gross sale of the center, and rental of the real estate.

Growth & Financial Strategy

The company has reached a respectable size, and now it can take the advantage of its name in the market, and can sell its franchises in the United States. As far as the growth is concerned, this is a new rising industry, which has the potential growth in the market. Furthermore, we can determine the given numbers below. See exhibit 2. This shows that with respect to the increasing number of franchises, the revenue will also increase. If we take a look at the percentage of the return against the investment, then it would give a good return, as well as it is increasing on a yearly basis. The company has a business plan and a strategy to sell the franchises, now the company has to increase the number of franchises to generate profit for the shareholders.....................

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