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The Health Nut Case Study

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The Health Nut Case Brief

In this situation I would recommend Bregmann and Bury consider declaring bankruptcy. At the outset, it is clear there is not enough cash and the situation is vital and urgent. When you consider that The Health Nut in early January 2006 had $21,000 in bank loans and approximately $25,000 in credit card debt and at the time of purchase from the previous owners the business was purchased for $22,000, it is obvious that there is an overreliance on debt. At the end of the first year when sales were half of what had been projected in the business plan, it is an ominous sign and maybe they should have reevaluated at that point in time due to the gross miscalculation. Gross Margin in 2005 was approximately 40.83% ($46,547/$114,007), in 2004 it was 29.72%, and in 2003 was 24.88%; this shows that over the years more of each dollar of sales is being used to service The Health Nut’s other costs and obligations. The Debt to Equity ratio for 2005 was (0.9) [$49,421/($52,776)]. The company’s negative net worth is troubling because it is indicative that The Health Nut has been losing money for some time. By proactively looking into Chapter 11 bankruptcy, they will be able to do it on their own terms and have better cooperation with the creditors without risking losing their home. Chapter 11 bankruptcies have also been seen as a way of ‘restructuring’ and The Health Nut may be able to continue operating with some

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