Guillermo_Furniture_Week_1

Guillermo Furniture Store Robert Bartle FIN/571 8/16/2010 Gordon Floeting, CPA Guillermo Furniture Store Guillermo Navallez has recently had some issues within his custom furniture company (GFS) that will need to be addressed. There has recently been some stiff competition from an overseas producer of furniture that has been able to produce quality comparable to Guillermo’s at lower cost. This has been affecting the business’ profits but it has also given him an opportunity to expand into other directions with the business that was not previously explored. The business has not been managed as effectively as it could have been as evidenced by the financial statements provided by the company. We will attempt to explore Mr. Navallez’s options and make sound recommendations for the business. In order for Mr. Nevallez to be competitive in his industry he will need to have a competitive economic advantage. In most cases, the company must have some additional factor that urges the customers to choose his company over one of his competitors. Most common factor for competitive advantage is either price or quality. In Guillermo Furniture Store (GFS)’s case the latter was what drew customers to his company; GFS’s quality of furniture was attractive at the prices the company would sell at. According to Fuhene, one way to retain competitive advantage “is by focusing on three key areas of pricing. Profitability improvements from pricing depend on investing in strategies and tools to examine, rationalize and enforce pricing policies and best practices. The companies that focus on these three key pricing areas will be well rewarded with improved revenue, margin and market share. Since the addition of the competing plant that can produce the same quality of furniture at a lower price the company has lost that advantage” (Fuhene, 2010). Another area that the store needs to focus on is the value and economic efficiency of the operation. These are interrelated concepts and can be very vague and hard to give simple answers to. GFS adds value to their products by taking raw materials and producing a good that the public will buy, the efficiency is determined by the pricing and how much the buying public is willing to spend for those goods. The problem for GFS is to determine the most efficient price for their goods in order for sales to reach maximum while keeping the best profit margin. Since the buying public’s choices change and other economic factors can influence the choices that individuals make when purchasing. The target that the company needs to meet is the closest to being as efficient as possible. This generally will be reflected in the company’s profit margin; a healthy profit margin will correspond to a healthy value. Customers regard value as utmost when choosing which products to purchase; alienating customers with perceived diminished value will hurt business and the economic environment globally and locally can affect value. According to Frank, “customer satisfaction is not only influenced by corporate performance but also by external economic processes, then managers have to account for these economic influences. Misinterpreting economic-induced variations in customer satisfaction as consequences of changing corporate performance can lead to wrong management decisions” (Frank, 2009). Management that cannot balance the good of the company as well as the good of the customer will lose customer confidence and loss of overall company valuation. Another problem plaguing Guillermo’s Furniture is the lack of consistent and accurate financial reporting. The prior financial management has not done stellar work for the company and has been let go and Mr. Nevallez has been forced to complete the financial statements. According to the General Accounting Office, “[i]nternal control represents an organization’s plans, methods, and procedures used to meet its missions, goals, and objectives and serves as the first line of defense in safeguarding assets and preventing and detecting errors, fraud, waste, abuse, and mismanagement” (GAO, 2005). The lack of stringent financial controls leaves the company without a solid base of information to use in planning future strategies for the company. Additionally, there may be future issues with raising funds or collaborating with other companies as has been indicated in the case study. Guillermo Furniture Supply has several areas of its business that may need attention. The company will need to leverage its competitive advantages to create value for its customers. They will need to create efficiency in their operations to create that value that customers are looking for when considering their purchase. Finally, the company will need to clean up the company’s financial reporting in order to have best available data to make strategic decisions regarding the future direction of the company. References Frank, B., & Enkawa, T. (2009). Economic influences on perceived value, quality expectations and customer satisfaction. International Journal of Consumer Studies, 33(1), 72-82. doi:10.1111/j.1470-6431.2008.00731.x. Fuehne, D. (2010). Using Pricing as a Competitive Advantage. Industry Week/IW, 259(5), 46. Steinhoff, J. (2005). Financial Management: Effective Internal Control Is Key to Accountability: GAO-05-321T. GAO Reports, 1.