Guillermo_Furniture_Store_Concepts_Paper

RUNNING HEADER: Guillermo Furniture Store Concepts Paper Guillermo Furniture Store Concepts Paper Deunkai Soukkaseum University of Phoenix FIN/GM571 September 05, 2012 Dr. Yvan Nezerwe Guillermo’s Furniture Store Scenario The location of the scenario is Sonora, a beautiful city in Mexico and a vacation destination. In Sonora there is huge furniture manufacturing operated by Guillermo Navallez years in this local. This local provides a supply of timber for making variety of tables and chairs, and inexpensive labor. Therefore he priced the products to create marginal profits for the handcrafted products for such quality. However in the late 1990s two factors combined to cause a large impact Guillermo’s business. There was competitor from overseas that has entered the furniture market with high-tech approaches to produce furniture to exact specifications. The production was efficient, and cost effective to be sold with rock-bottom prices. Another factor is a population boom in Sonora influence had expansion of the city with inexpensive housing, and city developments cause arrival of new people and jobs. This impacted substantially as it raises cost for labor diminishing of profit margins for Guillermo’s furniture business. With research on his competition adapting to changes shows them combining into larger organizations through merger or acquisition. Guillermo does not like the notion of consolidation, merging or selling to larger competitor and therefore retired from financial drain from the overhead costs. In a business such as Guillermo’s furniture manufacturing key financial factors must become essential to sustainability of the company. Using these financial and accounting principles and concepts is necessary for growth, and survival. Understanding the use of his income statements and the value of return on investment must be integral to daily business to adapt to foreign competitors. A major factor is cost and creating revenues for the company and should be included in their financial planning. The proper understanding of business ethics with a competitive mindset will give Guillermo Furniture’s the financial planning to survive. Guillermo will need to become more proactive to compete against competitors. Analyzing the competitors is a start, but not adapting to technological and social change is a mistake that cost the business to fail. First Guillermo needs to have a financial plan that is suitable for social surrounding, such as the growth boom in Sonora. The investment of into new technology and capital is also important as well product pricing. Adapting to these changes does not guarantee success, but the company will be in a situation to compete and survive. Therefore, financial management and be mindful of cost, revenues, and bottom line profits should be the daily concerns of the business. Financial management is comprehensive to knowing how to invest and comparing costs to produce greater revenues is balancing act. Guillermo Furniture Store is located in Sonora, Mexico, and owned by Guillermo Navallez. Guillermo was making good profit in his business by using the relatively inexpensive labor until new competitors arrived in the market. As it started to rise up the material cost and also the labor cost in the market, Guillermo was facing a decrease in his profit margin. In order to continue the business and compete with the new competitors in the market, Guillermo needs to use the budgets and performance reports for his business. By doing so Guillermo will be able to monitor the trends as well as make the financial plans ahead of time in his business. Guillermo has three options to choose from to make the best financial decision for his business: stay. in manufacturing as is, high-tech solution, and broker out option. The figures in the provided data will help Guillermo to decide what changes he needs to make for the best alternative decision. In this paper the subject to discuss is how Guillermo make the correct business decision by using highest ethical standards, most relevant accounting information as well as the budgets and performance reports. Budgets and Performance Reports “There are two basic types of decisions within an organization: (1) planning decisions, and (2) control decisions.” In Guillermo’s case, he will use the planning decision by setting up the objectives for his organization and outlining how it will attain them (Burgstahler, 2008, p. 12). According to Burgstahler (2008), “Budget is a quantitative expression of a plan of action. Budget helps to coordinate and implement plan. Without budgets, planning may not get the front-and-center focus that it usually deserves” (p. 13).business should be conscious of cash basis accounting and accrual basis accounting and how they function. Guillermo Furniture must realize it will need professional expertise such as accountants, legal counsel, and tax advisors who understand business and want to see the business progressAfter conducting some research on the competition, it is evident Guillermo has practiced the “Behavioral Principle”. This principle refers to looking around and seeing what others are doing. The scenario stated Guillermo researched others to see how they were adapting to changes and they were reacting. In some cases, this approach can be helpful and offer guidance on which direction the business should take. The behavioral principle can also backfire if a business is not careful. A decision must be made in determining if there is an obvious best alternative plan *