Fin 375

Com537 - Reed’s Clothier is a well-established, family run men’s retail clothing store.  

Com 537 -The store is well-known in the community and owes much of its sales to the graduates of Virginia Military Institute.   The store was founded in 1934 by Jim Reed, who retired in 1976 and decided to pass on his business to his son, Jim Reed II.  

Fin375 - Although Jim struggled in beginning, as the years ran on his business continued to be successful.   Reed had usually met his financial obligations through his sales and from borrowing at his local bank.   Reed had become close friends with the local business banker, Bob Roberts who barely glanced at Reeds'. The store continued to be successful even after Jim Reed II took over in 1976, but by 1981 Jim Reed II felt that the store needed to have more inventory available, which would lead to higher sales.  
Fin 375 -Jim Reed decided to increase his floor space and his inventory.   However, probably one of Reed’s mistakes was in taking out an $880,000 long-term mortgage loan.   Reed continued to increase inventory as he watched his sales grow to $2 million in 1994.   Reed believed that his sales were directly related to the increase in his inventory.   Store sales had doubled, however, inventory had tripled causing the store to be in even greater debt.   Jim Reed II began having cash flow problems with the stores accounts being almost 40 days past due and supplier demanding payment.   Reed went back to the bank for help, however this time instead of meeting with the family friend, Bob Roberts, he was introduced to Harold Holmes as his new banker.   Holmes immediately asked Reed for his financial statements and upon review informed Reed that his business was in serious financial trouble.   Holmes refused to increase the business’ line of credit, as well as asked for the $130,000 note to be paid back within 30 days.

 

Fin 375