Lawrence Sports Working Capital Management Lawrence Sports

Lawrence Sports Working Capital Management

Lawrence Sports is a manufacturer of sporting goods facing a fiscal dilemma in the early spring of 2011. Between the months of March and April, the company would experience an impasse within the context of its Current Cash Conversion Cycle. Here, an improved strategy for working capital management is called for.

First, with respect to the cash conversion cycle, Lawrence Sports largely draws is working capital from two sources. The first of these is its partnership with Mayo, the largest retailer in the world and buyer of 95% of all goods from Lawrence. The second of these is the Central Bank, which maintains the company's account balance at $50,000 through a system of automatic loans that are invoked any time the company's cash availability slips beneath this margin. Historically, Lawrence has employed an Aggressive approach to its capital management by relying on a wealth of sales and compensation from a single source. This is an approach which would depend on what the simulation terms as the 'aggressive' sales styling of Mayo Account Management Robert Dent as well as on the approach of vesting all of the company's revenue on only one source.

This structure is completed on the other side with a steady outflow of cash to suppliers Murray and Gartner. These two firms are the primary collectors that round out the cash flow picture for Lawrence. At the juncture reported upon here, in the late April of 2011, this structure is producing imminent difficulty for Lawrence. The terms of its agreement with the Central Bank include interest rates that increase at different price points and a ceiling of $1.2 million in total loans. Having reached this ceiling in April of 2011, it has become evident that failure has been produced in the company as a result of the aggressive approach vesting all of its revenues into a single source.

Recommended Alternative:

This denotes the need for an alternative that centers on improving the distribution of revenue sources and, simultaneously, an imposition of new repayment terms with Mayo. Lawrence will also need to find ways to balance the distribution of payments to Murray and Gartner such that this does not render too negative an impact on either supplier but that it does promote greater stability for Lawrence itself. Ultimately though, this scenario should be rounded out with the courtship of new retail outlets to supplement the revenue brought in by Mayo.

The primary risk of such an approach is in endangering the relationship between Lawrence and Mayo. However, at this juncture, Mayo's failure to make payment consistent with the terms of its agreements with Lawrence have already impacted this good-faith relationship. Therefore, this is considered an acceptable risk when balanced by the benefit of diversifying income sources. This will make the firm less vulnerable to the individual vagaries of any given partner.