Guillermo_Furnature_Store

Guillermo Furniture Store Recommendation FIN/571 October 17, 2011 Guillermo Furniture Store Recommendation A strong business plan, a valuable product, a target customer base, and a solid structure financially are the foundation to a successful company. Guillermo is just one example of with such success. However, with current changes in the market Guillermo has realized the relevant need for change for his company to remain successful. The following will provide an analysis of Guillermo’s alternatives along with a financial recommendation to aid Guillermo in the next five years. Alternatives The first alternative that Guillermo has under consideration is to follow the business market trend of implementing a high-tech solution to increase production capacity and reduce costs. This alternative would require substantial financing for the advanced computer equipment and robots. Selecting the high-tech alternative would also require operations to shut down during plant retooling, equipment installation, and initial training. Despite the significant initial costs involved in a high-tech solution, this alternative has the potential to increase production to maximum levels with minimal need for laborers’. The reduction in labor costs and operating costs would improve Guillermo’s profit margins significantly. To accept this alternative Guillermo must be willing to restructure its financial planning strategy and embrace a long-term investment commitment. The second alternative available to Guillermo is to purchase its furniture coating for production instead of producing it to reduce operating costs. This option would reduce its current cost per unit of furniture manufactured and Guillermo could lease use of its patented coating process to other organizations. This alternative will produce only nominal benefit in increasing revenues at current production volumes as per unit savings is small, but at increased production volume the benefits of this alternative increase. Reduction of operating costs and leverage of patented processes for flame and stain resistance furniture coating could be a viable alternative in a market with growing demand. The last alternative Guillermo has considered is the distributor option that would allow Guillermo to maintain current operations for high-end furniture manufacturing work while partnering with a foreign competitor. This alternative involves Guillermo entering a partnership with a foreign competitor that wants to gain access to the North American market. The foreign competitor has extended an offer to Guillermo to become a distributor of its furniture products. If Guillermo accepts this alternative it will require minimal initial costs to switch operations strategies from a manufacturing model to a distribution model. Retention of high-end work would allow Guillermo to maintain the uniqueness of its brand while cutting costs and improving profits. Alternative Evaluations Guillermo Furniture store should have alternative evaluations. Alternative evaluation is the process through which the company should compare and contrast different solutions to the same marketplace problem. With Guillermo owning a small business that involves him doing a lot of decision making. Guillermo notice the increased competition along with all the changes in the economy. Guillermo should use financial planning a a process of evaluating the impact of alternative investing and financing decisions (Emery, Finnerty, & Stowe, 2007). Using financial planning can help the company get the most out of their money. Careful planning can help the business set priorities and work toward the long-term goals for the company. It can provide protection against the unexpected and prepare for things such as loss of income. The evaluation phase of financial planning is when the company compares its overall performance to the financial plan. The managers is evaluated in terms of how well their performance compares to the objective. Guillermo watched his profit margins shrink as prices fell and costs rose ( Guillermo Furniture Store Scenario, 2011). Financial planners will assist Guillermo by researching how budgets and performance reports could help him in his decision making process. A budget is a quantitative expression of a plan of action. The word budgeting is usually looked at as limitations on spending. Budgeting is use for multiple reasons. Most business organizations also use budgets, but the most important functions of budgets are for planning, performance evaluation, and communication. Budgets assist managers to detect potential problems and provide an opportunity for early prevention. Recommendation of financial decision Justification of recommendation Pro Forma Cash Flow Budget Conclusion Reference Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). Corporate financial management (3rd ed.). Morristown, NJ. Wohl Publishing Inc.. Wise Geek. (2011). What is Financial Planning' Retrieved from: http://www.wisegeek.com