Assisting the Company in Financial Projections - Case Study Example

Name Institution Professor Course Date TABLE OF CONTENTS Executive Summary…………………………………………….............................. 3 Introduction………………………………………………………………………... 3 Profit & Loss Reports……………………………………………………………….. 6 SimVenture Future Projections…………………………………………………….. 9 Conclusions …………………………………………………………………………. 9 Recommendations…………………………………………………………………… 10 Personal Reflective Report ………………………………………………………… 10 References…………………………………………………………………………… 13 Company Business Simulation Activity 2 (Trading Report) Executive Summary SimVenture Company was founded in 1999 and is involved with the sales of computer software to schools and other learning institutions. This report is intended at identifying the financial statements for the company. To ensure that the reports presented are worth the effort, the latest reports have been formulated for the last two years. The report’s main objective is to convince the bank manager that SimVenture Company is creditworthy in support for an expansion loan that the company intends to borrow from the bank. The purpose for the loan is to assist the company in financial projections that are projected for the next six months. Introduction Since the formation of SimVenture Company in 1999, there has been a lot of consistence in business performance that has contributed to the continued profits in the company and especially in the last six months. The Company is headed by a Chief Executive Officer who has been in the helm of the company for the last three years. He has overseen tremendous growth in the Company and this is evident with the profits that have been reported for the last six months. The boards of directors have seen the importance of putting more money in the company in accordance to the CEO’s recommendation that the company needs to expand. One aspect of the company’s expansion strategy is to introduce more products in the market in order to increase its market share to match its competitors. SimVenture Company makes its revenue through the sales of computer software that are designed to meet the market demand. In order to meet the set sales targets for the next fiscal year, the company intends to source for funds from your bank. Hopefully this report is elaborate enough to convince the bank management that our company is creditworthy and it therefore qualifies for a loan to cater for the planned expansion strategy. The actual figure that the company intends to borrow will be discussed once the bank informs us of the maximum amount that the company qualifies to get based on this report. In the month of January 2010, when the company was started, the capital base was not much. The SimVenture Company started with only five computers and it was operating from a friend’s house. Since it did not have an established market share it was important for some marketing to be done to inform clients of our products. Due to financial limitations marketing was done by a word of mouth hoping that the first clients would spread the good news of the company’s existence. Through continued hard work and persistence in aggressive marketing, the company had some five orders in the first month (Bond, 2009 pp, 65). By then the company had only five workers and two of them were part time workers. The five people who started the company were the one who had volunteered to be workers in the first month and therefore they were not expecting any wages unless the company performed well to cater for such overheads. In that month the company made two sales that gave a total income of $ 1,000. The cost of sales was around $ 600. This gave us a gross profit of $400 which eventually reduced to a loss of $ 1,200 after other expenses such as marketing were catered for. In the month of February 2010, the SimVenture Company made five sales with a total income of $ 2,000. The cost of sales was $ 2,200, while the total expenses were $ 4,000 transforming to a loss of around $ 2,000. In the month of March, the Company only managed six sales. Sales and marketing had the highest expenses of $1,250. The total sales were $2,500 and when other expenses were deducted the net loss was $ 1,500. This was drastic improvement from the previous month’s performance. In April, May, and June the net incomes per month were -$1,500, -$1,100, and -$1,350 respectively. The major difference experienced in these three months was that they had a total of 50 inquiries which was the highest since the inception of the company. After getting such a high number of inquiries the management decided to employ one permanent staff who was to be paid a sustainer fee until the company was stable to cater for full salary payments. In July, August, and September the sales per month were 10, 15, and 20 respectively. This was a positive indication that the Company was gaining ground in the market share with 80% of the clients being returned customers (Holmes, 2008 pp, 169). The increase in the sales was as a result of marketing that covered more regions. In the same period one more permanent staff had been added to boost the sales and marketing team. It therefore implied that the total expenses were more in these three months. Consequently the Company managed a total loss of $ 2,100 for the three months combined. This was a huge milestone and a good measure that the company was headed for growth if proper business strategies were initiated and implemented. For the last quarter of the year 2010, it was decided that more resources would be allocated in sales and marketing and for the first time an advertisement was placed in a local radio station informing people of our services. The money was borrowed from the founders of the company who also had to borrow from their friends and well wishers. In total there was around $ 2,000 more dollars that were pumped into the business (Tull, 2003 pp. 102). All that money was directed to sales and marketing and some market research. As a result of this, the company recorded the highest number of sales since its inception. To be precise there were 15, 19, and 22 sales for the months of October, November, and December respectively. This was a positive feedback even if the company still did not mange to make any loss. The number of enquiries had also increased to an average of 30 enquiries per month. Profit & Loss Report for the months of Jan, Feb, March, and April 2010 January February March April Sales $ 1,000 $2,000 $2,500 $1,900 Other Income $ 200 Total Income $1,000 $ 2,000 $ 2,500 $2,100 Cost of Sales $ 600 $ 2,200 $ 2,100 $1,800 Gross Profit $400 ($200) $ 400 $300 Overheads Wages Training $ 650 Rent Research $ 450 $ 650 $150 Sales & Marketing $1,000 $ 1,200 $1,250 $1,500 Finance Miscellaneous $150 $150 $ 300 $200 Total Expenses $ 1,600 $ 2,000 $ 1,900 Net Profit ($ 1,200) ($ 2,200) ($1,500) ($ 1,500) Profit & Loss Report for the months of May, June, July, and Aug 2010 May June July Aug Sales $ 3,000 $2,800 $ 3,100 $ 3,600 Other Income $ 400 Total Income $ 3,000 $ 2,800 $ 3,100 $4,000 Cost of Sales $ 1,800 $ 2,000 $ 2,100 $ 1,600 Gross Profit $1,200 $800 $1,000 $2,400 Overheads Wages $200 $50 $200 Training $300 $100 $350 Rent Research Sales & Marketing $1,600 $2,000 $1,500 $2,500 Finance Miscellaneous $200 $100 $200 $150 Total Expenses $2,300 $2,150 $1,800 $3,200 Net Profit ($1100) ($1350) ($800) ($800) Profit & Loss Report for the months of Sept, Oct, Nov, and Dec 2010 Sept Oct Nov Dec Sales $ 5,000 $7,800 $ 6,100 $ 4,600 Other Income $700 $800 $ 600 Total Income $ 5,000 $ 8,500 $6,900 $5,200 Cost of Sales $ 1,800 $ 3,000 $ 2,100 $ 1,600 Gross Profit $1,200 $5,500 $ 4,800 $3,600 Overheads Wages $200 $200 $200 Training $300 $ 400 $350 Rent Research $1,500 $1,000 Sales & Marketing $1,600 $3,000 $ 3,500 $3,500 Finance Miscellaneous $200 $100 $100 $150 Total Expenses $2,300 $4,800 $5,000 $4,200 Net Profit ($700) $600 ($200) ($600) The SimVenture Company Future Projections for the next six months With the trend that was seen in the last three months of the year 2010, there are projections for enormous growth in the next six months. The company intends to increase the number of staff to twenty who will be holding various positions in the company all under the leadership of a Chief Executive Officer (Greasly, 2004 pp, 148). All the employees in the Company will be employed on contract unlike the current situation where majority of the workers are volunteers since they are founders. From the survey that has been carried out since the company was formed, it is quite clear that the major obstacle for growth and development in the Company is lack of finances to cater for aggressive marketing and research development. The Company market share is still below the expectations and the demand of the products produced is hitting escalating levels. With enough finances to put in marketing media such as televisions and newspapers, the average sales projections for the company in the next six months is hundred sales per month. This will eventually place the company in a situation where it will be making profits as opposed to the losses that it has been making in the last one year. With a financial input of around $ 400,000, the company will be in a position to make more than 100 sales in a month and this is projected to result in average monthly net income of $5,000 (Tull, 2003 pp. 125). Conclusion With extensive market research in the development of the Company products, it will be possible to reach more clients and even open offices in different regions so as to take services closer to the people. The Expansion strategy is likely to result in increased market share which is among the company’s projections for the next six months. Therefore, it is fundamental that aspects of soliciting funds should be initiated to enable it to meet its expansion and differentiation strategy. Recommendations The SimVenture Company should put a lot of effort in the expansion strategy. It is also advisable to do some market survey so as to understand the needs of clients. In the past the company has been concentrating on few products and in order to attract more clients, the company needs to diversify in the nature of its products. More assets including best computers and other office machines are also required to be able to meet the set objectives. It is therefore recommended that the company borrows around $ 400,000 from the bank with a repayment period of three years. Activity 3 –Personal Reflective Report For the purpose of this assignment we formed a team of two people to explore the SimVenture business simulation package where we were to trade the company for fifteen months. Considering the intensity of the work a head of us we decided to appoint one of us to act as a managing director. In this case, I was selected to be the managing director, as I could delegate duties and mobilize well when preparing for a meeting. Both of us in the team had diverse character traits. My partner was very talkative and contributed almost in any agenda raised in the team. On the other hand, I was relatively cautious when it came to team discussions. I was a keen listener and would never interrupt my team member when he was talking. My position as the managing director required me to be considerate and not to dictate ideas. To be able to cover the task at hand, we had a time schedule that had to be strictly followed by all of us (Erickson, 2007 pp, 75). We used to meet for two hours every day where we could come up with at least one monthly report for our company. If any of us was to miss a meeting due to a pressing issue one had to inform the other beforehand. As a managing director, I had the mandate to give permission after such as excuse. When it came decision making, I must admit that it was not an easy task to settle at one. This was because my team member had tendencies of forcing his ideas on me, and in most cases he insisted he was right, though at times it turned out to be so. It took a lot of time to convince him in such a situation and in most cases I was forced to rule his ideas out despite numerous bickering. Since were two, if one person supported an idea while the other was opposed to it, we always discussed in detail until we agreed on one idea (Haines, 2008 pp, 65). This was not always the best option as one would maliciously want to oppose an idea from the other without any formidable reason. Some of the difficulties that our team encountered included situations where we had to change meeting times whenever one person was not available or there were more assignments to be attended to. This called for additional time in the following meetings which again inconvenienced either of us. Planning was one element of team dynamic that had to be considered (Bates, 2003 pp, 210). Whenever we met we had to plan ahead so as to be prepared on the agenda of the following meetings. The planning involved each one of us to come up with a sample of a profit and loss account for a particular meeting. Whenever we met we could discuss our samples and come up with final report that suited specific months. To settle for the figures in the monthly reports a lot of negotiations ensued and this was quite healthy as we were able to come up with quality reports. There was a gradual progress during the SimVenture discussions. Every time we met we had to remind ourselves on what we had agreed in the previous meeting. This was aimed at ensuring that we remain on track and that our objectives were met. In our meetings, we had to consider various trade-offs. For instance, we had to consider profit versus growth, and this was not easy to agree on as some of us believed that growth of our business was paramount and should be prioritized before profit. My team member believed that so long as a business was making profit there was no need to consider its growth (Schell & Tyson, 2008 pp, 289). At the end, we settled on the idea that growth led to profit and that profit led to growth. In terms of the business ideas being short term or long term, the team had to evaluate various aspects (Williams, 2009 pp, 159). The short term goals of the business included paying for such expenses as rent and electricity. Long term objectives included expansion strategies that would take a longer time to accomplish. In terms of risk versus profit the team had to agree on any risks that the business was willing to undertake for the sake of making profit. The team however, unanimously agreed that it was wise to evaluate any risk to avoid engaging in foolhardy risks that could cause the collapse of the SimVenture Company. For any small business such as SimVenture business, a high level of commitment is required (McKay, 2007 pp, 127). One is required to sacrifice personal time and social life such as meeting friends or even spending time with family members. The SimVenture exercise has been of great help as it has made me understand in details how small business ventures operate, and such experience will be of significant use in the real life situation. References McKay, R. 2007. Opportunities in Your Own Service Business. New York: McGraw-Hill Professional. Williams, T. 2009. Quantitative Methods for Business. California: Routledge. Haines, S. 2008. The product manger’s desk reference. New York: McGraw-Hill Professional. Greasly, A. 2004. Simulation modeling for business. London: Ashgate Publishing. Schell, J., & Tyson, E. 2008. Small Business for Dummies. Boston: For Dummies. Bond, E. 2009. Starting and Running a Small Business: The Bare Facts. New Delhi: Denzel. Erickson, M. 2007. Business growth: activities, and themes. New York: Edward Elgar. Bates, S. 2003. The essential guide to managing small business growth. London: John Wiley & Sons. Tull, C. 2003. Mastering business analysis with Crystal Reports. Iowa: Wordware Publishing. Holmes, G. 2008. Interpreting Company reports and accounts. Boston: Routledge. Read More