Cyclermate Ltd Company PEST Analysis - Essay Example

? Cyclermate Consultancy report College: Introduction Theoriginalpurpose of conductingthisreport is to fill in theclient with theup to dateinformation pertaining to theposition of Cyclermate Ltd Company and evaluate whether the company can be made viable in the short term. Theclient, ZZZZ Bank, who has an interest in the company in the company, wants to knowabout the possibility of the company to regain its control in the short run. To thisregard, thisreport will give a keyillumination into a number of featuresrevolving aroundthetopics,such as financial analysis of the company as well as using this analysis to weigh the viability of the company in the short term. This report will try to establish whether it is possible for Cyclermate Company to clear off its debts and attain financial stability in the near future with the increasingly loss of profitability. Background information Cyclermate Company has been enjoying unprecedented growth in the manufacture of cycles for quite some time. However, the last few years have seen the profits of this company sink sharply resulting from declined sales. The company was started in 1988 by two friends, Lewis Llewellyn and Dai Armstrong who had been in this business of making cycles for more than 20 years.The two friends brought their wealth of experience together and they decided to start a cycle manufacturing business going by the name Cyclermate. Within just a span of slightly more than two years, the firm had expanded to an extent that the two friends decided to acquire premises from where they were conducting their business. With increased demand for their product, the staff also increased considerably but they still insisted on keeping the staff at a skeletal minimum to cut costs. Everything was done manually or through the use of old or effective machinery. Automation was discouraged as they couldn’t justify buying the machines that were to be used in bending of the bars to manufacture these cycles. The issue of quality with these cycles arose when a cycle had an accident and blamed it on the fault of a braking system. Sales have declined and with a few creditors, Linda Llewellyn, who is Lewi’s wife and she demands that her share of the business be given to her and along term loaner, Geraint Williams, who relies on the payments from this loan to take care of his ailing wife. There is much financial pressure on the business and if measures are not taken into place, financial strain could cause the business to close down (Campello, Graham, & Harvey, 2010; Bancel, & Mittoo,2011). To this regard, the chairman Dai Armstrong and Gwyneth Morgan the secretary were tasked with the prerogative of arranging for a meeting with the bank to negotiate the possibility of an overdraft. The bank had already stipulated that this request would be highly unlikely to be considered unless the company provides proof that there would be increased trading to turn around the declining profits. To be able to know for sure whether the company can be capable of turning around and consolidate itself on the financial front in the short run, a full overview and assessment of the country will be done in this report. A SWOT analysis will be conducted to identify the areas of strengths, weaknesses, opportunities as well as threats that face this company. The issue of quality in production will also be illuminated upon. Measures that the company is undertaking to ensure it reverses these negative profits will also be looked into among other relevant issues pertaining to this case. Assumptions made To be able to provide a comprehensive and granular analysis of the company in form of its financial position and other aspects such as production techniques as well as marketing strategies and administration strategies, a number of assumptions will have to be made here. These assumptions are discussed in the following paragraphs. The main assumption is that both the company management and the bank acknowledge that the company had been performing well in the past but the sales have declined over recent years, and with them, a sharp decline in the profitability level. Another assumption would be that the decline in the sales of the company has been triggered by the reported cases concerning the faultiness of their cycles. Buyers are shying away from buying products of this company because they fear that the quality is not up to standard. The company does not have a concrete system for managing its accounts, cash and other important administrative and financial features. SWOT analysis Before embarking onto the company’s financial situation, a SWOT analysis will be conducted at this point so as to identify the actual environment in which this company is operating in. Strengths of this company There are a number of strong areas in this company that are identified at a glance. First, the professionals who work here have a lot of work experience in handling and manufacture of the cycles. These staff members have been in this line for long and as such, their skills and experience records are impeccable. The employees are also capable of multitasking. For instance, Armstrong can operate the machine that bends and forms the cycle handles and at the same time be able to fix other items of this cycle. He is also capable of acting as the director in this company. This saves the company the cost of hiring other people to work in the different capacities that one person is capable of handling here. Strength could be in the quality of the product of this company. Cyclemate’s cycles are purely manually made and tested by humans before being dispatched out for sale. This has increased the trust and the confidence of the customers who continue to buy these cycles from the company from their uniqueness. Weaknesses Lack of specialization in this company could also be viewed as a negative factor. When employees handle different tasks at the same time, there is a high chance that one task will become neglected in preference to the other tasks (Kumar, & Sharma, 2011; Gok, & Hacioglu, 2010;Danaher, & Rossiter, 2011).For example, Armstrong may find that he cannot be fully capable of working at the production of the cycles directly while at the same time trying to oversee the whole production process. Another weakness is that none of these workers have had any experience of education pertaining to the management of a company like this. They rely upon their experience and hands on acquired knowledge on the job. As much as this is desirable, there are some issues that they find they do not know concerning management of the company. For instance, Gwyneth Morgan works for the company on a part-time basis dealing with both internal and external enquiries, data entry, and other routine tasks. Even with no experience, she is in charge of purchasing, hoping to avoid disruption from stock outs. Her lack of knowledge and experience prevents her from knowing for sure about the items that constitute inventory statistics, andso she has significantly increased the levels of re-order as a way of mitigating this issue. Opportunities There are a number of opportunities present out there for this business to exploit. First, no other businesses have come up as direct competitors to the Cyclemate’s products. This has ensured that the market for cycles is still there. The customers will always be demanding the cycles from the company as well as the spare parts to repair them if they break down. Another possible avenue of an opportunity for this company could be the increasing trend where people are abandoning their vehicles in preference of cycles as a mode of transport. These people could become potential customers for the company. Threats Perhaps the major threat facing this company is the threat of closure in case the sales do not increase. The negative profits form an indomitable threat for the company’s financial future. Other threats include the long term loan that the company is obligated to pay annually at 10% interest to an outside creditor. The company needs to have cash flowing into the company, not the other way round. Another threat that could lead to the undoing of the company would be the complaints lodged against this company by people who have had accidents while using the products of the company. These people could paint a bad image of the company making clients shy away from buying products from this company (Uncles, Dowling& Hammond, 2003; Woodruffe & Wakenshaw, 2011).. Through this conduct of SWOT analysis, a skeletal and well informed sketch of the company’s standing could be identified. However, for the purposes of this report, a more detailed analysis of this company will be conducted. PEST analysis An analysis encompassing political, economical, social and technological aspects that in one way ort the other affects the Cycler mate company is done in the discussion that follows. Political analysis Politically, the company can be said to be operating in an area where there is a stable political climate. Political stability gives room for the operations of this company to thrive and allows for investors to pool their capital into the company without fear of losing their investment as a result of political insurgences or instabilities. Economical analysis In the review and description of this company, it has been mentioned that the economy was not as stable as it used to be a decade earlier when the company started its operations. The implications of this to the company is that stringent management facilities have to be employed to prevent the company from suffering much financially as a result of heightened inflation rates and decreased value of the currency being brought forth by the overall worsening macro-economic condition in the country. Social analysis On the social level, the company can be said to be fairing just well. However, there could be an increasing social distaste and disapproval of the company’s products if the company keeps on producing cycles that are of low quality and that break down or cause accidents after a premeditated number of years. The company should hence struggle to ensure that it’s social; image is perfect through conducting campaigns and public relations venture to uplift this image. Technological analyses On the technological arena, the company needs to have a major uplift. The overreliance on manual labor in the processing, testing as well as packaging the cycles is a major set back for this company in this era of modernized technological advancements. The company needs to employ the use of technology so that it can produce consistently high quality products with a little ease and a higher volume compared to using manual labor. The exact financial situation of the company The decline of sales over the last five years has put the financial position of this company in a real bad shape. Increased cash outflow and declining inflow and revenues have placed the financial position of this company in jeopardy. From the financial records of this company, it has been observed from the income statement that the revenue decreased considerably between year 2009 and 2010 following a decline in the number of total units sold in year 2010. The total number of units that were recorded as sales in the year 2009 was 2,799 and in year 2010, this declined with over 200 units to be recorded at 2,504. This decline in the sales volume has seen an unprecedented decline in the level of revenue from 1,634,456 pounds to 1,404,520 pounds in the years 2009 and 2010 respectively. The costs of materials have also increased considerably between the two years from total costs of 1,333, 262 pounds in the year 2009 to 1,355,942 pounds in the year 2010. These increased costs of materials and the taxes payable annually have led to a very sharp decline of the profits between the two year with almost a margin of over 20, 000 pounds in the levels of profits experienced in the two years. The net profit realized in the year 2009 stood at 42, 734 pounds, a very high margin from the 2010’s 12, 724 pounds. The drafted statement of financial does not show much hope either. The current assets value is placed at 489,318 in comparison to the current liabilities at 264,864 pounds. However, it is observed that there is quite a considerable level of retained earnings in this business, which is a good indication. However, when one takes a look at the administrative costs and the salaries and wages being paid to the workers in this company, and comparing them with profit margins realized, there is cause for worry. The loans are also a huge burden on this company. If the company keeps recording such dismal levels of profit earnings, matched with the kind of costs that the company incurs, it will have to run out of business soon. This financial position of the company is not very attractive. A number of factors have resulted into this kind of financial position for Cyclemate. The most notable one would be the declined level of sales. The sales volume has decreased considerably and with the decline of the sales volume, the revenues also decline in same momentum. The other factor would be increased costs of materials that are used in the production process. The materials have considerably become more costly as the years progress. This has had a negative impact upon the overall direct costs of production in this company. The fact that the company does not have an executive who handles the accounting matters on a full scale may have had an impact on the way the company utilizes its finances. With nobody to caution them against poor usage of finances and how to manage the finances of the company better, it could be a possible reason that have led the company lapsing into this financial ruin. However, the company has assets that it could lease or sell to get money. The company could also use this asset, the building in which it is located, as collateral for loan from banks. The budgeted loss for the year 2010 stands at 82,698 pounds. Is the assumption that prices and costs remain the same is made, 118 more cycles would have to be sold to offset this loss at the price of 700 pounds per unit. The capital structure of this company has too much debt compared to equity. Sheikh, &Wang(2011), state that an optimal capital structure should have a good combination of the debt and equity in its structure. Short-term options could be considered by the company to alleviate the difficulties it faces with liquidity and capital structure The company, through holding a board meeting and consulting among themselves have identified that their financial future could be well in ruins and unless something is done fast to reverse this scenario, the company could collapse. The predictions made are that the sales volumes are expected to keep on decreasing in the future if some mechanism is not put in place to change this. Having noted that, the member and shareholders of this company came up with some solutions that were meant to put the company back onto its feet again. These proposed solutions are highlighted in the following discussion. The quality issue was proposed to be solved by the increase of more workers by one of the members, an issue that was not accepted on the grounds that this would just increase costs to the company. Cost addition measures were not being accepted in the company. The company was looking for cost cutting measures instead. The task was left to the few people in the manufacturing section being asked to put more effort to ensure that more quality work was being done on the cycles so that the issues of quality lapses could be eliminated. The other immediate solution that the company aims at undertaking is to increase the volume of sales through conducting more vigorous advertising strategies. The directors have been urged to ensure that they do a comprehensive market study and approach more shops to ask them to stock their products. The board thinks that this is the best way in which the volume of sales could be increased and the financial position of the company salvaged before it is too late.According to Mr. Jones, an alternative route to increased sales would be to try to build up the direct sales. He notes that Cyclermate hadn’thad an advert in the national press for years now.Direct sales are of much benefit because the profit marginwould be greater if adverts were carried out. There was a mention of divulging into new technology as a way of increasing production through giving the manual process a berth. The chairman believes that with new technology and new machines, the process of making these cycles would considerably speed, the costs of production decrease and the sales volume will also increase. The company also felt that consultancy would be important in assisting it deal with financial and accounting issues. The final solution that the company proposed to try to save themselves in the short run was by taking an overdraft from a commercial bank to put itself back onto feet again. The chairman, Armstrong and Morgan are given the task of organizing a meeting with the bank to discuss the possibilities of an overdraft. Production methods and proposed improvements The production process in this company is mainly manual based. Most of the products from this company are made manually. Dai, one of the shareholders and co- founders himself makes the frames. He cuts special steel tube stock old but automated tube cutting saw and a tube bending machine. After this, painting process begins and the cycle frames are painted black. The painted frames are moved to the assembly area and the cycles assembled. Completed cycles are then tested manually before being packaged for dispatch. Packaging is done by whoever is free. This whole process is very manual. Nothing is automated. The other accessories, wheels, chain guards,mudguards and stays are manufactured in parallel with the frames. A small amount of brazing and riveting is used to attach brackets to guards. This is basically the whole production process of making one cycle at this company. Possible improvements to the production process The production process could be improved in a number of ways so that efficiency and reduction of costs in the manufacture of the existing product can be made. The most notable improvement would be the adoption of the use of technology to produce these cycles. Automation of the production process ensures that the volume of the cycles produced is high and the cost of production is minimized. Machines will replace a number of employees and they do not ask for any salary or wages and they do not get tired. Another possible improvement would be to expand the company so that all the production processes happen in this company. The production of the wheels to place in these cycles should not be outsourced because outsourcing is expensive and the quality is lower than the standard of this company. Human relations issues in this company Human relationship issues are not very rampant in this company as each person acts on behalf of the company for the welfare of the company. However, it is noted that there is a conflict between two of the major shareholders of the company. One party demands that the one-third part of the company that represents her share value in this company be sold and the proceeds given to her. The major reason of doing that is because she has irrevocable issues with one other shareholder. The withdrawal of this shareholder and the possible force to pay her her share value could result into the company collapsing because the company financial position as of now cannot weather such a financial blow. The only amicable solution to this conflict would be through dialogue and agreement. The party could relent her duties from the company and consider her portion of the share capital as a long term loan, payable at a certain time in the future and at a certain agreed interest rate. Long term perpetuity of the company For the company to be able to ensure its continued existence and perpetuity in the long run, a number of factors and improvements will have to be made. Some of these improvements are discussed in the ensuing discussion. Technology must be adapted. The concept of using the manual system has long been overtaken by time. Technology is the new way of doing things and making products. If the company adopts the use of technology in its production, it becomes possible for it to cut costs and increase the volumes of sales even in the longrun. Another concept would be advertisement and marketing. Marketing is a very important tool to ensure that the brands and products of a company are recognized in the market and customers get exposed to them. The higher the level of exposure of the product following massive advertising, the higher the volume of sales for that product. Conclusion From the analysis of this company, it has been found that there is a potential for this company to bounce back into the market and reestablish itself as a recognized and respected maker of cycles. Following the company’s good image, the only flaw that is obvious is the management of the company which has almost led it to financial ruin. With assistance, the company can become profitable again. This report recommends that financial assistance be given to this company. However, this should be done under a number of conditions and the major one should be the restructuring of the management to makesure that the funds of this company are well managed and invested. 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