John Mullins
Managing Cash for Growth
Most of the time, entrepreneurs in need of growth capital would prefer to take on debt rather than
part with equity in their companies. As we shall see in this case discussion, if you are the
entrepreneur, making the decision between debt and equity represents a trade-off between
commercial risk and financial risk. If you are the banker, making the decision whether or not to
lend to a growing company means assessing two things: the adequacy of the collateral the
borrower can provide, if any; and the amount and certainty of the cash flows that will be available
to service the debt.
CASE:
Butler Lumber (HBSP)
PREPARATION:
If you are cast in the role of the banker, would you extend the larger credit
line that Mr. Butler has requested? Why or why not?
If you are cast in the role of Mr. Butler, what steps if any, could you take to
mitigate the need for external finance? The reading below will help you think
about this question.
READING:
© John Mullins
Churchill and Mullins, ‘How Fast Can Your Company Afford to Grow?’