Westward Water Solution Ltd Analysis - Case Study Example

SMALL BUSINESS ENTERPRISE Course Professor University City The Date Table of Content Contents Table of Content 2 Contents 2 Task 1 Provide an Outline of Small business including relevant facts and figures 1.1 a .what business is it? What are its main aim? Westward Water Solution Ltd (WWS) is concerned with installation and sales of water purification systems within the industrial field. The company also maintains such systems to their clients. By 2007, Westwards Water Solutions Ltd had made a sales turnover of over $1.2 million. The enterprise began as a sole proprietorship in water systems and evolved to be a private limited company that produces their own water purifications design systems. Managing director and the wife are in charge of the daily operations of Westwards Water Solution limited. The main objective of the company is offering quality purification of water products as well as services in a friendly cost to the customers to facilitate profitable company growth and promoting the employees welfare. 1.1 b Identify the Strength and Weakness of the business Lack of professional accountant at the workplace has affected Westward Water Solution performance. Employees’ leads to company success while well trained and perform their duties with due care and skills according to company standards. Linda Peter’s wife who is the company financial controller lacks accounting skills apart from basic book keeping. Consequently, the company may suffer an increase in their miscellaneous expenses. Finance management is very crucial for business success. Lack of finance skills may lead to a breach of ethical accounting rules and standards making the financial statement less significant. The deficit of financial statement management skills may lead to the manipulation which affects the final decision based on such statements. Linda may also be making erroneous figures calculation reducing the credibility of the financial information. This may, in turn, affect WWS Ltd reputation in the industry. Another problem that rocks WWs is a conflict of interest. Peter the CEO is working in the same company with Linda, who is the financial controller of the company. This will compromise the professional judgment of the company. Maintaining appropriate balance to the company needs by the couples may produce biased reports. Family members should not be employed by the same company. The objective of this is encouraging professional development among the staffs and reducing risk of unwanted behaviors that may lead to conflict of interest WWS has a challenge of combining marketing and sales. There is no group that can be good at both tasks. Marketing involves providing an explanation to the clients regarding the benefits of a product to boost interests and visibility. The sale helps in nurturing customers, progressing with lead while keeping a constant, steady relationship with the customers. Strength of Westward Water Solution The company has a royal clientele base which has been built through facilitating referrals, reducing costs and by protecting the company from competitors. The company converts potential customers to actual ones by ensuring that their prospects marry with existing clients that later endorse value to certain brands. WWS has also engaged in fair pricing in a bid to attract a wide client base. Lower pricing than the competitors provide a competitive advantage in helping to attract more client. Marketing and sales is also done widely since words of mouth are more effective in creating a personal touch with the client. Creation of loyalty helps in forming solid client base which assist the enterprise the growth exponentially. Westward water solutions has also started foreign sales in a bid to widen their market base. However, this has been met by language barrier problems in the different countries of operation for example in Poland and France where WWS are forced to learn the local language. Foreign market sale has helped in diversifying the company portfolios and thus reducing the risk. The Foreign market also helps in creating avenues of disposing of their excess output just in case they occur alongside enabling full utilization of the company resources. 1.1 c what is its essential Strategies The company has embraced three strategies to boost their sales value namely: Cost strategy, growth strategy, and product differentiation strategy. WWS has excelled due to enjoying economies of scales while offering goods to clients. They pass these benefits to their customers in the form of lower prices. However, all cost saved are not passed to the customers. Significant amounts are retained by the company as profit. Low cost is saving aim at retaining cost saving to facilitate earning higher profits. The growth strategy is the next form of a strategy adopted by introducing new products, for instance, a typical water purification system in the market or by improving the existing products features. This is done to keep up with the higher competition offered by the rival companies to avoid losing clients as technology changes. New markets for instance in foreign countries like Poland have been found in a bid to make the WWS grow. Product differentiation strategy has also been adopted for the company to stand out from competition. New machines have been manufactured by Westward water solutions and different low prices charged to clients within different locations globally. Advertising and marketing have been heavily done highlighting company features like heritage, technology, styling and price. 1.2 Analyze the performance of the chosen business by comparing it using measures for comparable business Ratio analysis has been done by working out a combination of liquidity, profitability, activity and solvency ratios have been calculated. Interpretation has also been provided about Westward Water Solutions Limited. Working is found in attached excel document. Below are the answers only. The current ratio is arrived at by dividing Current Assets by the Current Liabilities. Westward Water Solution Ltd was able to meet its short-term obligations efficiently in 2007. This implies that the Company was more liquid in 2007 since the current ratio is higher (3.088). However, the company ability to pay it short term debts increased from 2005 to 2007 as shown by the ratio growth (Classification of financial ratios 2015). Quick Ratio is equal to the Quick Assets (cash+ market security Receivable) divided by the Current Liabilities. Quick ratio shows the percentage of current liabilities a company can cover by utilizing cash on hand, liquidation of short-term marketable security or by monetizing receivables. This ratio is constant throughout the three years at 2.06. This implies that Westward Water Solution can cover 2.06 of its assets using available cash, receivables, and market securities. Debt to Asset Ratio is calculated dividing Total Liabilities with Total Assets. The company debt to Asset ratio is increasing annually with the highest ratio being in 2007 at 14.44%. This increase in debt to asset ratio portrays Westwards Water Solution exposure to financial risk. The company used more financial leverage to meets its obligation in 2007. This weakens the company financial strength. Inventory turnover ratio is evaluated by dividing Cost of Goods Sold the average stock. Average Inventories is the result of dividing the sum of the opening and closing inventory by two. Inventory turnover ratio was highest at 7.21 in 2007 and lowest at 3.66 in 2006. This implies that faster stock sale was experienced in 2007. The company resources held up in inventory was also low in this year. Lowest inventory ratio experienced in 2006 means that stock was sold at a slower rate. Also, most of the Westwards Water Solution resources were held up in inventory in this year. Net Working Capital Ratio is a ratio of (Current Asset-Current Liabilities) to Total Assets this ratio show the company ability to pay current liabilities by using the current assets. Westward Water Solution ability to meet the current liabilities increases annually with 2007 at 30% being the best year. The company was doing well. In 2006, this ratio was lower at 24% implying a struggle in meeting current liabilities using current assets. Dividend payout ratio has been arrived at by getting the division of Dividends and Net income. The percentage of net income distribute among Westwards Water Solution shareholders has been growing from 2005 to 2007. Investors will be willing to invest in the company in 2007 since the dividend payout ratios are higher at 48.37%. Return on assets employed ratio (ROA) is arrived at by dividing net income by total assets. This ratio has been growing as shown by the calculation. The proportion of shareholders income against stakeholders’ investment in Westward Water Solution is higher in 2007 by 13.81%. This implies that for every $ 1 of Westward Water Solution assets, the enterprise is making $ 0.13 net income (Classification of financial ratios 2015). From the ration analysis above the company profitability has been growing between the year 2007 and 2006. This evident by the growth of dividends paid to members, however the company liquidity is at risk since meeting its current liabilities using the current asset is attained through difficulty. 3.1 Asses the existing objectives, strategies, and operational plan Porters 5 help financial professionals to explore how five forces influence an outcome. These forces include suppliers’ power, competitive rivalry, a threat of new entry, buyer power and substitution threat. Cost strategy aims at reducing the production cost within Westward water solutions. The company suppliers may increase the input prices depending on the uniqueness of the inputs. However, their strength of the market depends on the control they have over the water company (Porters five forces analysis 2015). The company has shorter repayment periods and pay the suppliers on a timely basis. This cost strategy has made it difficult for the suppliers to switch to other customers. Customers’ power is well taken care of by the cost strategy. The number of Westward water solutions buyers has grown considerably owing to the lower prices charged and increased consumer royalty. Every client is crucial to the business. Customers demand has been meeting through growth strategy where new product have been introduced using the new technology to meet their needs. Clients can therefore not switch to other suppliers owing to good clientele relationship created (Porters five forces analysis 2015). Competition with suppliers has been under control. This has been attained by adopting price differentiation in the market whereby prices for the company products are charged prices depending on the clients’ ability to pay. Quality product offered also ensure that clients do not switch to other suppliers. Consumers’ royalty has also contributed to the wider market base of the company Quality products are offered in an attempt to stifle threat to substitution. Although there are alternative products in the market, the company has to ensure that their products are at lower prices and are of good quality. This help to avoid outsourcing the same products by the clients from other sources. The company has also produced different varieties of water system products that meet client specifications. This has limited the clients to only one supplier WWS and thus enhancing market control (Porters five forces analysis 2015). Westward water solutions has controlled entry to market power. This is attained by enjoying economies of scale due to large scale production that reduces the operation cost and unit sales price. This price strategy bar competitors from entering water supply market due to the high entry cost involved. WWS has also adopted modern technology in producing their goods and services that have reduced the prices offered to client considerably. This bar competitor from entering the market due to the lower prices offered. PESTEL refers to political, economic, social, technological, environmental and legal factors that affect company operation and decision-making process in a country. PESTEL analysis facilitates marketing and finance experts to evaluate another factor a part from money that influence company operational decisions (Pestel Analysis 2015). Results from PESTEL has enabled westward water solutions in making specific planning choices that affects the future company operation. The political environment is favorable for the company operations owing to the political good will available in UK that facilitate thriving of business. This is also evident by the government support provided to WWS through provision of business infrastructure like water, electricity and favorable business policy. Economic factors are a challenge due to inflation experienced in the UK and other countries. The projected prices of produced good vary due to a persistent increase in prices within the economy over time. This has made profit margins to be unpredictable and increased the cost of production. The purchasing power has also reduced due to inflation. Technological factors have favored the operations of the company by reducing the operation cost involved and producing quality products. This has led to the growth of client’s royalty, an increase of the market base and higher production. The company also engages in Corporate Social Responsibility in a bid to build the company reputation and enhance recognition. It has created employment in the areas of operations and helped to build schools and other projects beneficial to the society. Westward water solutions has limited impact on environmental pollution especially water bodies as their social responsibility (Pestel Analysis 2015). This has created an enabling environment for their operation. Westward water solution has been abiding by the legal standards and requirement of their country of operation. This has help to avoid conflict with the authority. Compliance monitoring has ensured that all rules, ethical standards, and laws are observed. Compliance has created a good relationship with the government and facilitated company growth. The main objective of the company is offering quality services to clients at affordable prices 2.1 Identify, explain and recommend appropriate action to offset the weakness identified above Competent staffs should be hired to facilitate efficient operations within the company. Caution should be taken to avoid conflict of interest between workers and the entity. Relatives should not be hired to work for the company. Sales and marketing call for different mindsets while pursuing them successfully. Marketing and sales are supposed to support each other and not work in unison. This demands different communication with clients, different public market view, diverse business timeliness and different company objectives. Ensuring that marketing is reporting to sale imply that marketing will become internally sale support duty. When marketing becomes a leadership team, it becomes outward focused growth leader who support sales. 2.2 Identify, explain and record how present performance can be maintained and improved current by building on the strengths Planning and prioritization. Companies fail because of failing to plan. Having an end goal and organizing a game plan of how to achieve those goals will help WWS to maintain and improve performance. An analysis of crucial projects, which create largest value to the firm helps in benefiting the company. The company should select projects they can postpone or delegate without altering the results. Empowering employees. Empowerment is key in making workers efficient. While employees are happy, they are more productive, and they yield quality work. Relationship with the clients improves, marketing is done efficiently and without much follow-ups. Empowerment may be done through better remunerations or offering better salary benefits than the rival companies. By allowing the employees to set their own strategies and empowering them to think like a team in the long run helps to unearth their vision and in holding them accountable to the same visions through establishing clear deadlines. Performance monitoring on the other hand, entail analyzing a project in depth to establish its efficiency and effectiveness. Monitoring performance will also help in boosting the company performance. This may be done in two dimensions: compliance and performance monitoring. Compliance monitoring entails following required laws, ethical standards, good governance principles, and industrial codes. Performance can be monitored by assessing Record Management Asset Tool or benchmarking against prior management records (Corporate Governance 2016). Performance monitoring involves analyzing a project in depth to establish their efficiency and effectiveness. WWS need to develop criteria carry out interviews and examine documentations to establish how a project is done. Measuring performance will facilitate WWS measuring the attained outcomes and how well the outcomes are achieved. 2.3 Identify and analyze alternative new directions the business could expand into and select one preferred direction. Strategy of increasing sales and new markets within Westward water solutions The company sell products like processing pumps, desalination units, specialty slurry valves, steam generators as well as vertical turbine pumps. The company also offer services ranging from wastewater treatment and leasing of environmental equipment. There is need to increase local and abroad markets as the new strategy in order to boost sales revenue and remain competitive. Before increasing sale and clientele base of the company, there will be need of understanding the current customers: their value propositions, the competition status in the current market and whether there are entrant gaps. This calls for a market research through conducting legwork (Elizabeth Wasserman, 2009). The research will run from qualitative research to quantitative analysis through sending survey to existing clients using online survey tools like Zoomerang. Trade unions and government agencies will also be utilized in knowing target audience since they are source of existing clients’ information. The market research will also involve intensive interviews as well as a qualitative study regarding how the targeted clients feel about Westward water solutions products and services New clients and higher sales will then be achieved by networking through being involved in business functions like show rooms, community organizations like chamber of commerce and websites like LinkedIn or Plaxo to market the company products (Elizabeth Wasserman, 2009). Advertisement will also be conducted by carefully choosing the market to ensure access to target audience. Newspapers and TV will also be used in advertisement after defining the demographics. Champions of westward water solutions products will be developed by using business contacts that are happy with our products and services to facilitate in generating references as well as referrals. Clients help to market the business through a word of mouth. Task 3 3.1 Revise the existing business plan to incorporate recommendations made in task 2 The new business plan involves the former company objectives and Operational strategies. However, the following recommendations need be added. Marketing analysis and sale should be distinct form one another to enhance operational efficiency. Financial projections and evaluations need be done by the qualified financial controller. Linda, therefore, need be replaced with a more competent person. Also, more qualified staffs should be hired to meet the Labour demands of the company. An operational plan has to be improved by avoiding conflict of interest with company requirement. Relatives should not work in the same company to avoid collusion. Improving organization management through improving customer service department will improve the company performance. 3.3 Prepare a more detailed Operational Action Plan of implementing recommendations Executive summary-The main objective of westward water solutions is offering quality water products and services at affordable prices. There is prospect of growth potential given the rise of foreign sale. The company is viable owing to ability to produce goods at lower prices Marketing Opportunity-the company will adhere to costing, growth and product differentiation strategy. Competition threats will be offset by providing quality products and services at affordable prices. Clients’ priorities come first in operating. Politics, economic and technological factors are the key drivers to success. These factors will be greatly safeguarded to protect the business. There is a need to employ qualified workers and train the existing one too. Strategic action plans- Operations with Westward water solutions need to be coordinated to ensure smooth operation of the company Costs, resources, and timescale need be established and known in advance to facilitate planning. This requires sorting activities, drawing budgets, prioritizing and writing logical series action that has measurable values Recommendations- The plan has to be put into action by adhering to its specifications. This will depend on the authority or support offered. 4.1 Report the Effects of your proposed revised plan in terms of financing the business Various business has revenue variations leading to periods with higher cash volumes and lower cash volume. Having a revised plan increases chances of efficient cash management. This plan also provides a long run view of the company operations. It helps in keeping track of company activities and staying ahead of rivals. Business makes various decisions and detecting which decision led to success or which strategy worked may be difficult. The plan set quantifiable targets which may be compared with actual results annually. Trends in sales will, therefore, help the management in allocating funds. 4.2 Put forward a plan for monitoring and controlling progress in implementing revised plan Management committee will be using reports against their yearly operational plans in reviewing progress to facilitate meeting company strategic objectives. The following six steps will be followed in the reviewing of the progress: Who need be involved? What progress has the company made so far? Where the company is going? How the company gets there? A strategic plan need be written down and finally, monitoring and review of the strategic plan conducted. The committee ensures that activities are within agreed strategic goals. 4.3 Design a set of Performance measures for evaluating the revised plan once implemented Financial performance will be measure by calculating and analyzing ratios from company statements. Key ratios such as Gross Profit Margins, Net Profit margin and return on capital may be calculated to Westward water solutions financial strength and reveal a weakness for actions to be taken. Customers’ feedback will also serve as a performance indicator. Consequently, clients’ information such as sales data and complaints will be collected through the use of questionnaires or comment cards and mystery shopping. Employees’ performance measures to ensure meeting the planed deadlines is crucial. This may be attained through various meetings or appraisals. Employees can also be evaluated in quantitative terms by evaluating their contribution to the company financially. Benchmarking performance against another business is a crucial tool for performance indicator. References Classification of financial ratios 2015 Available at < http://www.accountingformanagement.org/classification-of-financial-ratios/> Accessed [March 15, 2015] Elizabeth Wasserman, December 1, 2009, How to find new customers and increase sales [Online] Available at http://www.inc.com/guides/find-new-customers.html Accessed [16 April 2016] Porters five forces analysis 2015 Available at Accessed [March 15, 2016] What is Pestel Analysis February 2015 Available at http://pestleanalysis.com/what-is-pestle- analysis/ Accessed [March 15, 2016] Corporate Governance 2016 Available at < http://www.businessballs.com/corporate- governance.htm>Accessed [March 15, 2016] Read More