Week_2_Paper_Fin_571

Guillermo Furniture Store Concepts Paper Teirsen L Davis FIN/571 Ayneka Bruno August 27, 2012 Guillermo Furniture Store Concepts Paper The Guillermo furniture store scenario discusses the different dynamics of running a private business. Small businesses are always at risk when major retail corporations move into the area in which the businesses are located. Guillermo’s furniture business specializes in making premium hand crafted wood furniture. Business for Guillermo’s was abundant until the late 1990s when two major competitors entered the market in Sonora, Mexico. Guillermo has many challenges ahead of him, concerning the future of his business. Other small businesses in the area have joined in partnership with the larger organizations however; Guillermo does not want to join that alliance. He wants to keep his business private with hopes of remaining profitable. The scenario has a direct correlation to the principles of finance. The principles of finance are divided into three definitive groups. The first group focuses on the competition in an economic environment. The second group of principles focuses on the ways of creating value and economic diversity. The third group of principles focuses on observing financial transactions. Guillermo uses these principles throughout the scenario as he makes decisions regarding his business. The first principle that Guillermo uses is the principle of self-interested behavior. This principle basically states that people act in their own financial self –interest (Emery, Finnerty, Stowe, 2007). Guillermo has to decide if closing his business or fighting through the hardship is the best thing for him financially. Guillermo needs to make a decision that will work for himself and his family. He expressed that he is not interested in expanding his management duties to another organization because of the amount of time it would take away from his personal life and family. Guillermo can implement new technology that would cut down production cost, but the technology is extremely expensive, as is the labor needed for production. However, Guillermo will make the best decision for his financial stability, which defines the principle of self-interested behavior. The next principle displayed in the Guillermo scenario is the principle of comparative advantage, which indicates that expertise can create value and profit. This principle also states that if everyone does what they are good at, the most qualified people will be performing each type of work (Emery, Finnerty, Stowe, 2007). Guillermo is passionate about his furniture business. Even though his home town will soon be saturated with other furniture manufacturers Guillermo is just as qualified as his competition. To separate himself from other competitors Guillermo has a patented process for creating a special stain restraint coating on his furniture. This gives him a slight advantage over the competition in the area. When individuals purchase items, especially furniture, quality is an important factor. These details can ensure Guillermo’s furniture stores continued support and business from those who put quality over price. The last principle that has a direct correlation to the scenario is the principle of risk return on trade-off. This principle states that there is a tradeoff between risk and return (Emery, Finnerty, Stowe, 2007). Many risks are involved with choices business owners have to make. Basically, if business owners or investors are afraid of taking risk the chances of success are lessened. Guillermo’s decision to take on the high quality technology or his decision to continue to work for himself relates to this principle. Guillermo may also take on the outside manufacture from Norway and become a representative for them. This also comes with much risk; however, Guillermo will not know the outcome until he gives the opportunity a try. In conclusion Guillermo furniture store has potential to continue as a major producer of custom furniture in the city of Sonora, Mexico. Despite the many challenges and decisions that Guillermo has faced he is still considered to be one of the best at his craft in the local area. The principles of finance apply to the scenario because each correlate to different situations Guillermo faced. Making the right decision will ensure that Guillermo’s furniture store remains in business and gains profit. References Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). Corporate Financial Management (3rd Ed.). : .