CUSTOM RIDES & RACING: MAKING THE “GO/NO GO” DECISION
Patricia Holman & Tom Hinthorne
Montana State University-Billings
Adrienne Mayer, Custom Rides & Racing
Case Objectives and Use
The objectives are to enable students to: (1) Conduct a general situational assessment of the proposed start-up of Custom Rides and Racing (CRR). (2) Develop semi-annual and annual pro forma financial statements for the first year (i.e., income statements, balance sheets, and cash flow statements). (3) Calculate the cash breakeven points by product/service categories. (4) Test the sensitivity of the analysis to changes in key variables. (5) Evaluate the potential for a collision of family and business values if the proposed start-up proceeds. (6) Make the “go/no” decision. The case writers developed the case for undergraduate and graduate courses in small business management and entrepreneurship.
Case Synopsis
In their senior year in business school (2003-2004), Dria and another student developed a business plan for Custom Rides & Racing, a retail outlet and installation/testing facility to serve the growing market for customizing sport compact cars for show and racing. In May 2004, their plan won first place awards in two business plan competitions. Dria and her husband, Ben, wanted to start the business. They had an eight-year-old daughter, and both had good jobs. They needed $255,000 to start the business. With high hopes, they talked to investors and lenders. Despite their experience in customizing sport compact cars for show and racing, no one would finance the venture. Some lenders and investors told them they needed “more real-world experience.” Others said, “You need to prove you can make money; start anywhere you can and prove it.” Meanwhile, Dria and Ben began testing their business plan concept from their home by (1) selling and installing sports compact auto parts and (2) buying and selling used sports compact cars. In October 2004, Dria’s grandfather offered them $15,000 and said, “Start the business! In a year, you can test your business concept, show that the business cash flows, and rewrite your business plan. Then, you can take your experience and your business plan to the bank; and you’ll get the financing you need to ramp the business up.” Then, Dria’s parents offered them $15,000. By December 2004, they had accumulated $45,000 of equity capital. They had reached the “go/no go” decision point. As Ben explained, “Ideally, CRR takes two people to run it—one to run the retail side and one to do the installation and testing. Do we risk the family’s money? What should we do?”
The authors developed the case for class discussion rather than to illustrate either effective or ineffective handling of the situation. The case, instructor’s manual, and synopsis were anonymously peer reviewed and accepted by the North American Case Research Association (NACRA) for its annual meeting, October 27-29, 2005, North Falmouth, MA. All rights are reserved to the authors and NACRA. © 2005 by Patricia Holman, Tom Hinthorne, and Adrienne Mayer. Contact person: Patricia Holman, College of Business, Montana State University-Billings, 1500 University Drive, Billings, MT 59101-0298, 406-657-2035,