Not only is financing a startup business a challenge, bt Island home improvement

Question

Not only is financing a startup business a challenge, bt Island home improvement market and was seeking a part- sometimes remaining fiscally fit for survival is itself a dif ner. After months of negotiation, Moon Associates struck ficult hurdle to overcome. The first three years of starting a deal to be the sole southern New England partner, and a business can be the toughest, but how does a company Renewal by Andersen of Rhode Island soon debuted. With that has been operating for several years continue to find this partnership, Moon Associates was positioned to serve sources of financing? Economic conditions, products, and ts existing customer base with Andersen's stylish, energy- customer bases can change, sometimes leaving a once-sus- efficient windows. tainable company in jeopardy of not meeting the day-to- day expenses of operation. Yet the partnership didn't provide Moon Associates with the necessary boost. In 2007, GutterHelmet sales Managing cash flows invariably takes more than justdropped 50 percent, to S6 mlion. Despite efforts to matching payables with receivables, covering pay advertise on the Internet, new business leads were hard to and paying taxes and insurance. As business conditions generate. Renewal by Andersen of Rhode Island endured change, so can the money coming into a company. Even the normal financial hardships of starting up, and Moon after startup loans have been retired, a line of credi or Associates' bottom line went in the red after total com loan from a good funding provider is essential to keep a pany revenues plummeted 30 percent. Moon Associates business moving forward. needed something more than a new product line or divi sion to return the company to profitability Moonworks, a Rhode Island-based remodeling bus New England winters can be hard, and the winter of ness founded as Moon Associates in 1993, enjoyed a modest rise to financial success by selling a product called G 2007/2008 was even tougher for Moon Associates. For the terHelmet. Backed by the financial resources of BankRI irst time, the company's management team had to figure president and CEO Jim Moon turned GutterHelmet into out how to turn around a negative bottom line at a time a household name in New England by marketing it with when business in general was changing. Moon went back help from local celebrities. Between 1993 and 2005, Moon to the drawing board to look for top-level talent. Local Associates grew to S14 million in revenue by selling the celebrities weren't the answer, so he recruited industry product throughout New England, New York, and south- veteran Paul Thibeault, formerly Home Depot's Home west Florida, while working out of a 10,000-square-foot Services northeast manager, to inject muscle into the com- building the company owns in Woonsocket, Rhode Island. pany's sales force. But building sales would take time, and During that time, the company installed more gutters in the company needed new capital to move forward. Moon the New England states and New York than all other gut Associates called on an old friend, the company's long- ter companies combined term financial partner, BankRI. Banker Matt Weiner and As business boomed, Moon assembled a top-notch BankRI believed in Moon Associates business plan and management team and started offering other products ncreased the company's credit line to keep Moon Associ- like garage organizing systems and hurricane shutters,but ates on track. GutterHelmet remained the company's largest cash gen- erator. To set the stage for future growth, the company's team to play a hunch that Renewal by Andersen of Rhode management began implementing industry-leading bus Island could make a dent in the Cape Cod, Massachusetts, ness systems The capital enabled Moon Associates' management market. Further, the company diversified its product line The tide started to change in 2006. The market for gut to include general exterior home replacement products like ter protection and remodeling showed signs of weakening roofing and siding, as well as insulation and hot water heat- in a slowing housing market, and the competition started ers. Moon Associates changed its name to Moonworks and putting a dent in GutterHelmet. There was no seasona shifted its focus to being a leading regional home improve- uptick in fall orders, and Moon Associates began explor ment company and began to emphasize repeat customer ing other means of generating operating cash, including business instead of new customer generation. the sale of their Florida operation. About the same time, Andersen Company's full-service window replacement red and had a solid black bottom line. Revenues had grown division, Renewal by Andersen, had entered the Rhode 39 percent, and cash flows were positive. Moonworks was By the end of 2008, the company had emerged from the

Explanation / Answer

1. Line of credit (LOC) is basically an agreement between a financial institution and the borrower (who is also the customer of the financial institution) in which the maximum amount of loan that the customer can borrow from the financial institution is established. The financial institution is usually a bank. LOC enables the borrower to access the funds available to him through the LOC at any point. The only condition is that the borrowing should not exceed the maximum limit set in the LOC agreement.

Legal obligation of a bank to provide capital with a line of credit is that when the borrower is need of capital or funds the bank cannot deny the individual capital provided that the capital requirement does not exceed the pre-established maximum limit. It is to be noted that bank’s obligation exists only in case of formal line of credits (also known as revolving credit agreements) and not in case of informal line of credit.

3. Steps taken to remodel Moon Associates to sustain long term profitability:

Even when the market weakened Jim Moon took tangible steps to ensure that the company’s operating cash flow is not hurt and continues to be generated at the same pace as earlier. He started with the sale of the company’s Florida operation. The company then entered into a partnership with Renewal by Anderson to better serve its existing customers. The company took action so as to stay relevant and diversified its product line and started offering general exterior home replacement products. Lastly it laid focus on repeat customer business.

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