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Introduction Guillermo Navellez, owner of the largest prosperous furniture store in Sonora, Mexico is encountering globalization and the development of foreign competition. Economical labor and the multitude of timber in Sonora are key influences, which contributed to the manufacturing of the stores furniture. Guillermo faces new competition that possesses innovative technology with the aptitude to manufacture faster and at lower expenses. With the development of this refined technology, it is a necessity that the company implements a plan of action to terminate decreasing revenue and sales (University of Phoenix, 2013). The purpose of this essay is to examine the current business forecast and decide upon a strategy that would optimize working capital. The essay will also include an efficient pro forma budget and a recommended implementation plan. Current Alternative An alternative for Guillermo is to stay with the current situation by selling his own furniture but to combat the increasing costs of labor consider moving from his current location to another location within Mexico that has a lower labor cost. In this alternative scenario he would sell his existing buildings and equipment and move to a lower cost building within in a lower economy that will allow for the hiring of less expensive labor. By moving he will lower his
GUILLERMO FURNITURE STORE RECOMMENDATION overall costs which will allow Guillermo to use the increased revenue to escalate the marketing strategy to global distributors. To combat the moving to a lower economic location which can impact his sales, distributing his furniture to other countries allows for his products to be available to more consumers, increasing his chances at increased sales. This alternative also
allows for Guillermo to explore the possibility of acquiring new technology to cut down on long term cost. The negatives in selecting this alternative is it would not facilitate his current situation with his family. Taking the time to identifying where to locate the new facility, open the facility, identify distributors, and the time it would take to build a client base will take a toll on his ability to spend time with his family. However, if the business does take off, and the global market embraces his products, he will be very successful in that his labor cost is low and he can expand to the use of new technology to increase his product volume and therefore increase his sales. Hi-Tech Alternative There are two alternatives included for Guillermo in regards to implementing new technology; 1) is acquiring new technological equipment that will run 24 hours a day manufacturing the furniture, and 2) is the flame retardant spray that he has developed. Guillermo can take advantage of the lower cost of manufacturing by implementing new technology that runs 24 hours a day with little to no labor. Initially, Guillermo will have to invest money into the purchasing of new expensive equipment, but in the long run the use of the new technology will decrease his labor costs, increase his production and allow him to offer the products at a competitive price. This gives Guillermo a competitive advantage that he does not currently have. The use of the new technology will also allow him to spend more time with his family seeing he will not have to manage a large workforce. Incorporating the invention of his flame retardant will also allow Guillermo to be more competitive. Offering a specialized product will appeal to
GUILLERMO FURNITURE STORE RECOMMENDATION consumers, usage of the new technology will keep costs down and offer up more time for Guillermo. But the cost will impact him and he will have a period of time recouping from his investment financially. Broker/Distributor
Guillermo benefits as a partner with Norway Company. Essentially Guillermo can be the most important representative in North America after partnership with Norwegian Company. Navallez can take advantage and coordinate his developed distributor market network. In a rapidly growing industry, Guillermo business finances will increase without dealing with the complications and concerns involved in creating a new business product to market. Reminder Guillermo never wanted to take over or acquire a company nor for someone to acquire his (University of Phoenix, 2013). With this he will only work with another company because they would be partners working peacefully. Each one will have a benefit by working with each other rather than competing. The company had been looking for opportunities to distribute in North American and Guillermo is looking to stay and business and gain a profit. Guillermo has existing distributor network that can benefit in the coordination of the companies. Norway is a opposing company who had the modern technology for constructing the furniture at a very low rate, yet with finer detail, speed and accuracy that can benefit both companies. Guillermo can retain some of the high-end custom work required by their customers and raise their revenue by extending a hand. Recommendation A recommendation must be solid and prove to be flawless. It must also demonstrate that the company has an understanding of the outcome of the decision that may transpire now and in the forthcoming of the company. Consequently, validations of the recommendation must existent
GUILLERMO FURNITURE STORE RECOMMENDATION and offer the vital facts of the comprehensive monetary construction of Guillermos furniture store. Guillermo has three alternatives to choose from to make a profitable decision for his company. Of the three alternative: current, hi-tech, or broker, the clear choose is becoming a broker or distributor (University of Phoenix, 2013). Becoming a broker or distributor for the Norway business, helps eliminate the possible second competitor for Guillermo. It will be very beneficial for both of these companies to work together. The manufacturing costs have gone up
with increasing labor costs from improving economy around him so Guillermo furniture can take advantage of the low cost labor from Norway. With the low cost from Norway, Guillermo can take advantage and sell furniture at a lower price since he will now be a distributor. Each company brings their customers together and adding new customers with the merger, it will increase the performance profits and the operation costs will reduce. More products can be sold in the market rather than inventing new ideas to compete with other companies in the industry. The reduction of costs will be great because the initial cost needed to purchase new equipment is no longer needed. The business focus is sharpen by diversifying. Diversification of the business allows Guillermo Furniture Store to reach their goal of becoming the distributor of the Norwegian company in the region. This allows profits to be shared by both companies. This allows both companies to control pricing and elimination of competition. Competition will make the company sell at a low price and lose money because we lose control of what is sold in the market. With Guillermo Furniture Store working as a broker for Norway, it allows both companies to have control over mass production. Justification
GUILLERMO FURNITURE STORE RECOMMENDATION Guillermo Navallez can use the financial information to make pertinent business
decisions; even though some information contains limitations. This will allow Navallez to create a new operating structure, if needed, which will allow his business to turn a profit. There are many items to take into consideration when comparing prices, assets, dividends, earnings, and liabilities. Financial information has changed over time so that is something Navallez must remember. The decision will be driven by the differing costs. In this case, the business has the capability to require a merger and assist Guillermo Furniture maintain its independence. Working with a potential competitor, will result in high future earnings for both parties. Pro Forma Analysis BUDGET
Budget Data Units Budgeted Production 2,61 Mid-Grade High-End Direct Materials ($)/Unit 140.0 Mid-Grade High-End Direct Labor ($/HR)/Unit Labor Time (Hrs)/Unit 20.0 Mid-Grade High-End Direct Cost/Unit 440.0 Mid-Grade High-End 0 700.0 0 0 30.0 0 0 0 28.0 21.5 0 250.0 0 15.0 0 3 52 3 0 0 40 2,80
$ Budgeted
Units Actual
Price/Unit 509.0 Mid-Grade High-End Plant Overhead/Yr 50,00 Salaries Utilities Benefits Insurance Property Taxes Depreciation Supplies Income Tax Expense Variance Analysis June Units Budgeted Revenue 52 High-End Mid-Grade Total Revenue Cost of Goods 130,75 High-End Mid-Grade Total Cost of Goods 0 365,82 0 496,57 0 1,293,16 Net Revenue 4 1,019,25 Labor Wages Office Salaries Benefits Supplies Utilities Insurance Property Taxes Total Operating Expense 0 50,00 0 106,92 5 6,00 0 9,00 0 3,00 0 97 5 1,195,15 0 0 5 1,202,08 5 0 97 975 1,261,74 5) (59,66 5) (66,59 0 3,00 3000 0 9,00 9100 0) 5 6,00 5975 5 (10 0) 0 107,55 2 2 15.0 0 50,00 0 112,97 7) 2 5 (10 2 1,025,55 2 52,50 0) (5,41 7) 2 0 1,293,21 3 1,077,22 2) (2,50 0) (6,04 5 0 142.2 0 495,43 6 1,278,96 9) (51,67 2) (2,50 225.0 0 390,18 1 491,17 4 (14,24 1) (57,97 105,25 5 396,45 1) 4,25 4 (14,20 94,72 5 (6,27 1) 5,39 10,52 5 (30,63 36,02 3 2,61 3 7 1,789,73 4 2 7 1,330,01 7 459,71 1 2,78 3 1,788,64 9 42 9 1,418,58 3 1,770,13 3) 370,05 6 1,418,58 (18,50 351,55 3) (18,50 (108,16 1) 88,56 6 (19,59 5) VarGross 42.00% 10% 3,00 0 97 5 50,00 0 6,00 0 0 9,00 0 0 879.0 0
$ Budgeted
Units Actual
$ Budget-Flex
$ Actual
Var-Flex
(80,79 (80,79
33,93
Income Taxes
6 27,84
(46,86
Net Earnings Sales Forecast Budget=> High-End Mid-Grade Actual=> High-End Mid-Grade
June 52 3 2,61 3
470 2460
456 2522
442 2585
429 2650
416 2716
421 2787
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5 YEAR CASH FLOW Project cash flow with current option Y1 Y2 $1,789, $1,789,7 734 34 Y3 $1,789, 734 Y4 $1,789,7 34 Y5 $1,789, 734
Total Cash Inflows Cash Outflows (Expenses): Insurance Direct material Payroll Supplies Taxes & Licenses Utilities & Telephone Income taxes total outflows Cash surplus Projected cash flow with high tech option
$3,000 $3,000 $496,57 $496,57 0 0 $1,176, $1,176,1 175 75 $6,000 $975 $9,000 $6,000 $975 $9,000
$3,000 $496,5 70 $1,176, 175 $6,000 $975 $9,000 $20,16 6 $1,711, 886 $77,84 8
$3,000 $496,57 0 $1,176, 175 $6,000 $975 $9,000 $20,166 $1,711, 886 $77,848
Y3 $2,418, 645
Y4 $2,418,6 45
Y5 $2,418, 645
Cash Outflows (Expenses): Insurance Direct material Payroll Supplies Taxes & Licenses Utilities & Telephone Income tax total outflows Cash surplus Projected cash flow with high tech & broker option Y1 Y2 Y3 Y4 $2,418, $2,418,6 $2,418, $2,418,6 645 45 645 45 2013 $2,418, 645 $15,000 $15,000 $745,05 $745,05 0 0 $932,58 $932,58 0 0 $6,000 $3,900 $6,000 $3,900 $15,00 0 $745,0 50 $932,5 80 $6,000 $3,900 $27,00 0 93,428 $1,822, 958 $595,6 87 $15,000 $745,05 0 $932,58 0 $6,000 $3,900 $27,000 93,428 $1,822,9 58 $595,68 7 $15,000 $745,05 0 $932,58 0 $6,000 $3,900 $27,000 93,428 $1,822, 958 $595,68 7
Total Cash Inflows Cash Outflows (Expenses): Insurance Direct material Cost of broker Payroll Supplies Taxes & Licenses Utilities & Telephone Income taxes total outflows Cash surplus
$15,000 $15,000 $196,25 $196,25 0 0 $1,411, $1,411,2 200 00 $242,66 $242,66 0 0 $6,000 $3,900 $4,505 $6,000 $3,900 $4,505
$15,00 0 $196,2 50 $1,411, 200 $242,6 60 $6,000 $3,900 $4,505 $30,43 5 $1,909, 950 $508,6
$15,000 $196,25 0 $1,411,2 00 $242,66 0 $6,000 $3,900 $4,505 $30,435 $1,909,9 50 $508,69
$15,000 $196,25 0 $1,411, 200 $242,66 0 $6,000 $3,900 $4,505 $30,435 $1,909, 950 $508,69
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Conclusion To conclude, the pro-forma budget submitted for Guillermo Furniture entails recurrent modifications grounded upon the existing financial information and economic outlook for the furniture industry. A monthly update will keep the forecasts as close to accurate as imaginable. Due to an unbalanced economy and indecisive interest rates, it is strongly recommended that Guillermo become a broker or distributor for the Norway business. This will prove to be beneficial to all parties by increasing revenue and profit. This decision was based on the the fact of Guillermo needing to build revenue, profits, increase shareholders wealth, and improve credibility through credit analysis before applying the aggressive approach.
GUILLERMO FURNITURE STORE RECOMMENDATION References University of Phoenix. (2013). Guillermo Furniture Store Scenario. Retrieved from http://ecampus.phoenix.edu
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