Holmesafe Ltd

Three years ago, George Holmes, an engineer, hit upon an idea for a novel security device
Table 1
and produced a successful prototype in his workshop. He made some enquiries through
Income & Expenditure, year 1 friends to try and find a buyer and was introduced to Frank Jackson, a buyer for the
wholesale company of Smiths Ltd. Jackson offered to discuss the marketing of the product
Income
with his immediate superior, Harry Thomas who was the chief buyer with Smiths. A meeting
From Smiths 216,000 was arranged between the three men at which Holmes had a chance to form an opinion of
From Rowans 144,000
the characters of Jackson and Thomas. He judged that Thomas was a somewhat distant
man of high integrity who was prepared to leave action to his more vigorous subordinate
Other sales 54,000 Jackson, whose influence with Thomas appeared to be considerable. On the other hand,
Advisory services 13,500 Holmes felt that Jackson was warm, unscrupulous where the interests of his company, and
possibly himself, were concerned, and very active in furthering a cause in which he was
Total 427,500 interested.
Expenditure A trial batch of the devices was made for Smiths and these were easily sold. Further
Materials 140,000 quantities were made and sold in the same way and by the end of the first three months it
became clear that the demand for the product was going to increase. There was also an
Salaries 140,000 increase in demand for an advisory service on the installation of the new device and more
Other expenditure 45,000 generally on the problems of electronic security. With the demand on his time increasing
Holmes recruited first one friend, and then two more, and between them they were able to
Total 325,000 manage the business on a part-time basis for the first year. Holmes spent some time
cultivating Jackson, and generally being as friendly and affable as circumstances permitted.
In turn Jackson assisted Holmes by pushing sales of the new product and, just as
Table 2 important, ensured that Smiths paid all bills promptly.
Projected Income & Expenditure, year
The first year's "trading" produced good results and the four friends celebrated with a
2
theatre and supper party to which Jackson and his wife were invited and they made a
Income present of a crate of whiskey to Jackson. Sales continued to increase and the four decided
to form a company, Holmesafe Ltd with themselves as directors. They asked Jackson to
From Smiths 270,000
become the fifth director. When he mentioned this to Thomas, the latter pointed out that as
From Rowans 162,000 Jackson would be purchasing goods for Smiths from Holmesafe this would involve a conflict
Other sales 71,000
of interests for him. Jackson recognized the force of this argument and with expressions of
regret he turned down the invitation to become a director of Holmesafe.
Advisory services 63,000
During their first year of operation as a limited company it became clear that the market had
Expenditure been underestimated. Smiths’ demands were greater than anticipated and a large retail
Materials 158,000 chain also took a substantial volume of goods. Sales to smaller companies also began to
appreciate and fees from the advisory service also increased. The company could no
Salaries 184,000 longer manage on a part-time basis and an old school friend of Holmes became the
Other expenditure 72,000 company's first full-time employee. Half-way through the year a contract was signed with a
large national building contractor for Holmesafe to provide an advisory service on home
Total 414,000 security. Later in the year the company moved into new rented premises and took on a full-
time secretary.
 Table 1 shows income and expenditure for first year of operations.
 Table 2 shows the company's projected income and expenditure for the second year of
operation.
About midway through the second year Holmes received a phone call from Jackson which
after the usual greetings proceeded as follows:
Jackson: I thought I'd better let you know that I'm coming under increasing
pressure to buy security devices from Brown's. They are very similar in
performance to yours. Browns have improved their manufacturing
methods and are now extremely competitive and very reliable.
Holmes: But surely our reputation is worth a great deal. You have put a lot of
effort into this yourself; it would be a pity if it were all wasted.
Jackson Sure, and I’ll obviously do what I can. But I thought I should let you know
: how the land lies. Incidentally, there is a bit of personal advice I'd like
from you. You remember I used to play in a band a few evenings a week.
Well, for personal reasons I have had to give that up and it has left me a
bit short of cash. So, I'm looking for an evening job that will bring me in a
few pounds a week. Got any ideas?
Holmes: I don’t know of anything off hand but let me have a think about it. Let's
meet for lunch next Saturday to talk things over.
And there, effectively, the conversation ended.