Clarkson Lumber Company is owned and operated by Keith Clarkson. This company is a common example of a privately held company that has a low operating expense, minimal staff, yet a strong management structure. Clarkson lumber has experienced a rapid growth in sales and has gotten to a point where they are now faced with a shortage of cash. Clarkson Lumber will need cash reserves in order maintain its stability; especially, given the anticipated growth that will occur in the coming years. Mr. Clarkson himself bought out his partner’s interest in the company in 1994 for $200 thousand. At the time, his partner, Henry Holtz, took a note for the $200 thousand with an interest rate of 11 percent. This was repayable in semi-annual installments of $50 thousand beginning June 30, 1995 (Piper, 1996, para. 3). The primary reason the note was taken was to give Mr. Clarkson time to arrange for the necessary financing.
Overall, it seems Mr. Clarkson is running the company well. It is apparent that there are some consistencies in sales growth year upon year. However, it appears that Clarkson Lumber is
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is a manufacturer of industrial and household shears. Due to a policy of level production and a periodic sales pattern, the company is faced with having to borrow funds via- a line of credit in order to cover their accumulation of inventory and receivables. During years 1995 and 1996, ShearCut’s sales began to decline from the projected levels because of a downturn in retailing. The company may not have reacted timely which resulted in an accrual of excess inventory and related liability to repay its bank loan prior the next seasons period of demand increase. In 1995, David Fisher, Treasurer of SureCut Shears, Inc., was actually provided a $3.5 million line of credit from Hudson National Bank in order to cover supplies for the fall period. He anticipated that this line of credit would be completely paid off in full by December 1995 (Kester, 1997, para.