Bonne Chance Case Solution

1. One of the most straightforward ways to countering liquidity issues is issuing equity if not undertaking borrowing. As Bonne Chance cannot opt for borrowing, it will have to look for other ways. Zimmermann can give a share in equity by taking in a partner. The funds the partner will provide will help deal with the cash management crisis and help achieve a smooth flow of the business. However, this would mean a lesser share of profits and loss of independent decision making. He could even borrow money on a personal basis from friends or family, just like he pulled off favors for the Swatch dealership. However, more favors may be difficult to pull off.

Salaries for week 0 can be deferred. Salaries of the seven sales personnel amount to $6,000 roughly; salaries of the janitor and clerical staff add up to $1,840, and Zimmermann's salary is $2,380. These amounts sum up to around $10,220. This amount could serve as a contributory factor towards tackling the liquidity shortage of week 0. Advertising expenditures of the first 3 days of October could also save a further $1,600. This, however, will increase next week’s liabilities and may affect sales. Additionally, Bonne Chance could dispose of unproductive assets and the money generated from the sale could be used to deal with the week’s liquidity. On the other hand, it may not even have unutilized assets.

Furthermore, a proper review of accounts receivable would provide Bonne Chance with information regarding it credit sales and payment that are due in week 0. Credit sale clients and other debtors could be contacted and can be asserted to make prompt payments. Pushing credit customers may, however, put them off and they may not make purchases in future because may perceive Bonne Chance’s credit policies as inflexible. Last but not the least, the balance sheet of Bonne Chance shows Shareholder’s Equity of $400,000. Using the equity reserve to deal with the liquidity shortage could be one possible option. Use of this many means lesser money available for other purposes, though; for example, growth and equity distribution.

2. Zimmermann should opt-in the Swatch Deal. This is because Bonne Chance's business is already declining and the Swatch deal can change that; the case mentions that this deal could reasonably create traffic at the store. Also, being the exclusive dealer for the brand will bring all customers of the brand to Bonne Chance and will increase chances of other purchases as well. Furthermore, under the current circumstances, the store is losing on profits; the deal could prove to be very profitable as calculations indicate Swatch revenues will earn Bonne Chance $8,991,000 from Nov 1 to Dec 31 and $29,970,000 in FY 2011.

Bonne Chance has four potential options for financing the upfront payment, and none of them violate the loan covenants agreed upon with the bank. This is because the covenants disallow borrowing from other sources without the bank’s permission, and none of the options entail borrowing.