How does one make $1.4 million with 8 employees? Probably just corporate for Case Labs (CPA, lawyer, CEO, customer service, etc.).
Raw materials are what percentage of the cost of their cases though? 10%? Not even? The bulk of their costs are likely labor. If they can't handle a 10% shift in prices, their margins in the first place are too small.
Small fabrication companies can easily do $1.4 Million in revenue in a year, especially if they are in the medical field like they are. Revenue isn't profit, it is just money taken in by the company. Subtract from that the cost of business. $1 Million of that could easily just be the cost of material.
Yes, the tariffs and the resulting destabilization of the metal market can cause wild price fluctuations. Yes, the price of raw aluminum in the global market has nearly doubled. It was selling for about $300 per ton in August of 2017, it is now selling for over $560 per ton. It is definitely not just a 10% shift in prices. A big reason for this is with the tariffs in place, a lot of producers are just cutting back production, causing a shortage. They cut their production back to half, the resulting shortage allows them to sell half the product at almost twice the price. And when the tariffs end, they go back to full production and all returns to normal. The problem comes with the small business that can not easily absorb and adjust to the increase in raw material costs that happens that quickly.
But obviously that's not the only reason, the big default is probably the main reason for closing, and caused a domino effect. And I'm guessing the default wasn't on the CaseLabs side, but was on the fabrication side of the business. They likely have large accounts that are constantly putting in orders, and as such likely extend those accounts credit. It is very easy for a small company to over extend credit to big accounts. You want to keep them happy, and you just see the orders coming in. They are happy because they can just call and make an order, and you are happy because the orders keep coming in. But you are taking out credit to order the supplies to make the product for that big customer. The big account keeps sending you some money every month, and it is enough for you to pay your credit bills, so all is good, right? But one day the big client suddenly declares bankruptcy... And you pull up their account and they owe you $250,000. Oops. You'll never see that money, and if you do it will be pennies on the dollar years down the line when the courts finally settle the bankruptcy. But your credit bill doesn't go away. You still owe $200,000 on the business line of credit just due to that big client. They are still going to expect you to make your $10,000 credit payment next month, but now you aren't getting any money coming in from the big client anymore.
Is it poor management on your side? Yes, but an easy mistake that a lot of small business make. But now you are in a situation where you've maxed out your credit, and can't afford to buy the raw material necessary to make your product, and a big reason you can't afford the material is that the raw material is now almost double what it cost last year. You can try to run by using the money coming in on new orders to pay for the materials for the old orders, but that system doesn't work. First, you have to pretty much double the price or your product. Second, this results in a large drop off of new orders coming in. Thrid, you're still not making enough to cover the next business line of credit payment.
Case Labs wasn't a big company, and I don't think their parent company was either. From what I remember, CaseLabs was born because the fabrication business needed a new CAD workstation, and they weren't happy with the available cases on the market at the time, so they decided to make their own. Then they decided to start marketing their case. The fabrication company wasn't that big either. So a big hit like this can kill a small business very easily.
So, were the tariffs part of the reason CaseLabs went under? Yes. Were they the only reason? No.
