After reading the Harper & Reiman, LLC case, please answer the question that follows.
Harper & Reiman, LLC, is a consulting firm that caters to nonprofit organizations. The company is headquartered in Dallas, Texas, and has recently expanded to include an office in Amarillo, Texas, Harper’s home town.
The business was founded in 2000 by Brett Harper and Anna Reiman, who met in an entrepreneurship class in college and discovered that they shared a passion for serving and developing the nonprofit sphere. Following graduation, they both were employed by J.P. Morgan. They frequently worked together on common assignments. On a number of occasions, they worked with nonprofit organizations whose innovative processes allowed them to “do more with less.” The not-for-profits simply were not able to throw a lot of cash at problems, as many large business organizations do, and had to think and act like entrepreneurs if they were to achieve their missions. Harper and Reiman soon came to believe that for-profit businesses could learn from the really good nonprofits.
After eight years at JP Morgan, Harper and Reiman decided to start their own consulting firm, Harper & Reiman, LLC. At first, they limited their work to financial advisory services, knowing that many nonprofits needed help in managing their financial operations. The company developed financial management software that centers on liquidity analytics and enables nonprofits to shorten cash conversion cycles and strengthen liquidity. They gradually expanded into other services, including sustainable business solutions, infrastructure consulting, risk management, and innovation services.
The company has experienced significant growth, with sales approaching $29 million in 2013—far beyond anything the owners could have imagined. For one thing, the company distinguished itself in the industry by designing a payment system that allows nonprofits to make payments for Harper & Reiman services in seasons when donations are the highest. However, it also required Harper & Reiman to diversify its client base so that receivables are consistently being collected. Essentially, the company has applied the advice it gives to clients to itself.
While the majority of consulting clients are located near the two regional offices, the firm’s software has been sold nationwide on a limited basis. Wanting to enter new geographical markets, Harper and Reiman are considering a marketing strategy to increase the firm’s national visibility. However, before beginning a major expansion, they want to evaluate the firm’s financial health.
Answer the following question:
Harper and Reiman are interested in examining four specific issues: liquidity, profitability, the risk occurring from debt financing, and the rate of return the business is providing to them as owners.
They also want to have a good sense of the sources and uses of cash flows in the business.
Given the firm’s recent financial results, as shown above, evaluate the company’s financial situation as it relates to the owners’ concerns.
What advice would you give to Harper and Reiman?
