Financial Strategy: McTavish and Company - Research Paper Example

McTavish and Company details Supervisor Table of Contents Executive Summary 3 Introduction 4 2.Methodology 5 3.Results 6 3.5.1.Scale of Company Contracts 11 3.5.2.Bidding strategy 12 3.5.3.Financial Strategy 13 3.5.3.1.Cash Flow Management 13 3.5.3.2.Purchases 13 3.5.3.3.Collections 14 3.5.3.4.Investments 14 3.5.3.5.Considerations 14 3.5.4.Administrative Structure 14 4.Discussion 15 5.Conclusions 17 References 18 Executive Summary McTavish and Company is a company that is steadily growing and the client base increasing. However, it is important the company continues its trend of profitability but this includes the restructuring of the company so that it is able to handle and balance the changes that will aid in the increase of clientele and profit. To determine the best way that is needed to ensure that the company makes as much money as possible while providing quality products, a survey of the services and the cash books of the company were scrutinized to look for the weak link in the company and be able to tell where it was bleeding money and where it would make money. The methods that were used were observation and interviews of the workers and the leaders so as to be able to know what their thoughts are on the topic. It was found that the company was making rash decisions that were causing the company millions due to unfulfilled promises that were made to the company. These promises were high risk, but the company was too blinded by the desire to ensure that there was a lot of profit that was generated by the company. It would be best that the company ensures that the tenders that they opt to offer are accurate and are realistically possible for the company and its partners. The company should reduce the desire to achieve the unachievable at once but rather try and approach it slowly by slowly taking in the steps that are made by the company. Lean manufacturing that was used by companies such as Toyota is among the techniques that will be suggested with the profits and outcome of its use displayed by reviewing a company that has applied it. 1. Introduction McTavish and Company is a general building company that is situated in Scotland and has shown interest in making sure that there is a large amount of revenue that has been generated by the company over the period of time that it has been in the industry. However, over the years, the company has not been able to make as much profits as they would like to and have been forced to review their marketing and product strategy. It is for this reason that the company wishes to try and maintain the level of relevance that they hold in the eyes of the public. In doing so, the company hopes to ensure that; It will be able to increase the number of clients that approach it. Increase the amount of revenue that is generated Reduce the waste that the company is producing Strategic in contract geography Management and organizational changes to improve the profit margin. Proper risk management The company’s financials show that there have been profits however, they have not been met due to some of the following objectives not being met or present at the time. The company has been experiencing positive fiscal years and this is a commendable report, however, the dips in the share ad profits gives one a different view that there are times when there are wasted chances and goods that make the company result in loss. 2. Methodology 2.1. Experimental/sampling design In the understanding of the company and the way in which it works, one will use a sampling methods that will allow the consultancy to take a look at the company’s books and analyze the way in which the company has been carrying out its business plans and to be able to look into the worst decisions that are made by the people that run the company. Furthermore, a lean management technique will be put in play so as to see whether some of the services that are offered can be bettered if there was reduced workforce but a greater determination among the people. The study of McTavish and Co. will focus on the financial books of the company and their tabulation and calculation using excel software so as to balance the way in which the money and the finances of the company are directed. The study techniques that may be used in the study include observation and calculation so as to get a picture of the company’s trading. This focused on the cash flow of the company, the bank account balances, VAT among other financial prospects. 2.2. Data analysis The data that was collected reflected that the company was not doing bad in the construction and building industry and could help gain the company profits if there was a balanced and strategic view at the way in which the company was being operated and the carrying out of the contract that the company is awarded. Furthermore, the data included a look at the way in which the workers were carrying out their duties and if there was any waste in any department of the company (Diamond, 2011). 3. Results 3.1. Contract cancellation On looking at the company record it was found that the company was making too many rash decisions that could be detrimental to the activities of the company. This is because the company does not look deep enough into the companies that are joined. This is visible in the way in which the company that was allocated the 13th contract had to pull out of the market due to insolvency issues and this left the company with a tremendous debt and an unfinished project. The halt of the ongoing contract made the company’s foreseen profits reduce by a margin and result in there being a worse financial occurrence (Cameron & Green, 2012). 3.2. Loan taking The company was unable to kick off some of the plans that they had and were forced to look to banks so as to be able to cover the cost of the project and still be able to run its projects. 3.3. Poor company turn overs With reduced devotion to the company works, it is seen that the company turnovers will reduce and drop. This is true because the lack of proper management will result in this. The fact that there has been no constant trend in the company’s revenue, it is for this reason that the profits and revenue of the company are constantly fluctuating from year to year. The flactuation in the year 2008 where there was drop in the sales followed by a not so steady rise in the years of 2009 and 2010 and a drop in 2012 followed by a rise, give one the idea that the company is not steady (Cameron, 2009). 3.4. Waste By not being able to carry out the planned investments and contracts, it is evident that the company will be wasting products and raw materials that would be used in the construction industry and help the company become solvent. 3.4.1. The Implementation of lean manufacturing Lean construction is a process of project delivery that is based on the production management process so as to come up with a new way of designing and building capital facilities. Over time the definition has been changed due to the process and the objective that is experienced at the end of the process. As stated by a business word reference, incline development is the nonstop procedure of killing waste, gathering all client orders, while concentrating on the whole esteem stream, and quest for flawlessness in the execution of a built undertaking. The process and approach to business and construction embodies a philosophy of product management that has come under the microscope for being comparable and contrastable to craft production and mass production. The construction and design industry has developed different ways of looking at the products and the contract management but has failed to come up with useable methods of the management of production (The Folk Group, 2009, p. 3). The term that is ‘lean’ can be linked to numerous sources including management thinker, W. Edwards Deming and industrialist Henry Ford. This term was developed from the Toyota approach to business and development in their manufacturing operation that was called the Toyota Production System, and spread through to the sales, distribution and sales operations of the company during the 1970s and 1980s. The term ‘lean’ was popularized in a book ‘The Machine that Changed the World’, which highlighted the difference, in performance of the companies that were there, at the time. The superior performance that was experienced by the Japanese was as a result of the lean production strategy that was employed. This is includes the use of business methods that used less of everything - the capital that was invested, human effort, time, inventory and facilities - in product development, manufacturing, supply of parts and the relations that are used among the customer. It is for this reason that the design company would like to employ this technique of lean construction (thinking) in the management, development and service that are offered. This is so as to maximize the profits that are made by the company. Elimination of waste: Elimination of the non-value adding activities (waste) that are mentioned above, will lead to an improvement in the services and the corporate performance of the company and this aid in the earning of profits and gaining more clients for the offered services. However, getting rid of the waste that is produced is not as easy as one would like to believe. In a business, there is not only one person that provides the necessary equipment for the construction and design process. There are different companies that provide different entities and It is these relationships that must be cut and new ones formed so as to reduce if not eliminate the inter-firm waste and to effectively manage the stream of the goods as they flow as a whole. This will help in the elimination of wasted time and resources and this will give room to the biggest opportunities that are available (United States Environmental Protection Agency, 2003, p. 5). This will give the company the power to look at the best way to increase the performance and enable greater company focus on the creation of value in the products shipped. Reduced Setup times Majority, if not all, of the setup processes that are practiced in the business and manufacturing industry are wasteful and it would be advisable that the company was to reduce them. This is because they do not add value and they result in labor and equipment being preoccupied. Training workers, using charts and using organizing procedures in the carrying out of setup, the company will be able to reduce the setup times from those that are experienced in the traditional industry of months to hours. It would even be more efficient if the setup time was reduced to nothing but mere minutes. Workplace organization and standardization In order to achieve the above aim of reducing waste in a company, there is the requirement that all the people that are working in the company are well organized and there is a standardization procedure. This will result in there being a reliable release of work between specialist in the design, supply and assembly thus assuring that value is delivered to the customer and the waste is reduced. The advantage to using this principle is that there will be a decentralization of decision making. This means that people that are closest to the project will be given the authority and freedom to make decision and plan activities to increase the reliability in the schedule (Osterwalder, Pigneur & Clark, 2010). Furthermore, the company is to come up with an internal restructuring plan that will have some of the people that are responsible for the waste and non-value adding activities fired and others hired while there are those that will have their roles changed based on their devotion and the quality of the work that is produced (Buckley, 2004). Secondly, the implementation of the lean constriction technique and workplace organization and standardization will lead to the achievement of the goal of reduced hindrances that are experienced. That is, there will be focus on the overall project rather than speed of separate individual activities eliminates the bottlenecks that would occur in traditional construction. 3.4.2. Evidence of potential success Taking a look at tone of the major car manufacturing companies in the world, one would notice that there is some truth to the transformation plans that are proposed for implementation. Toyota Company came up with the Toyota Production System (Spear & Bowen, 1999). It is from this system that one gets the realization that the company had used the techniques above to maintain their dominance in the foreign car market despite the smaller workforce that was present at the time. Furthermore, under the influence of the production system, the company was able to maintain higher standards and quality of their vehicles as compared to the American ones despite the larger number of workers that were present at the time (Fargher Jr, 2007, p. 4-6). Taking this into account, the company would be best suited for it because the numbers of workers that are hired by the company do not seem to have a great positive impact on the profitability of the company. This is based on the fact that out of the activities that take place at the company, only 5-10% of them are said to value adding with the rest being wither non-value adding or just necessary activities. 3.5. Poor planning With poor planning, the company was unable to see the terrible future that was ahead of itself and could not make any changes and financial prerequisites so as to ensure that there is some money that the company may fall back on. 3.5.1. Scale of Company Contracts With the recent happenings that have plagued the company, it is important to understand that the company needs to take a step back and analyze the way in which the company makes deals with other companies. This is so as to ensure that in the unlikely event that a contracted company was to back down; it would not dent the company to the extent of it asking for a loan from the government (Bryman & Bell, 2011). The company should focus on contracts that brought in the best and largest amount of revenue so as to ensure that the company remains afloat and still makes money. The contracts that are offered should furthermore take contracts that will help in the pushing of the company forward in terms of the development that is needed and the development of the region. Geographically, as a start, the company should make sure that there is constant supervision of the contracts and the developments that are needed to be carried so as to ensure that there is proper and hasty development (Rees, 1995). Furthermore, from the chosen contracts, it is a must that the company makes sure that there is a high percentage of money that is set aside as a minimum of the amount of revenue that is gained from the contracts. However, before a tender is issued it is worth thinking about what a perfect tendering process would be like. We think that a superb tender process will: Quickly uncover the factors that will differentiate good bids from average ones Give both evaluators and respondents a clear and common understanding of how the tender will be evaluated, and where they should each put most energy to ensure success Minimize paperwork Get the right balance between tightly defined questions and opportunities for bidders to expand on the benefits they bring to the contract Make it easy for evaluators to compare responses Use an evaluation method that’s fair and appropriate for the job At the point when the most reduced value offer is clearly insufficient, and/or the bidder does not seem to have the essential assets to finish the work, the bidder must be made completely mindful of the circumstances, and asked for to audit the delicate (Rutterford, Upton & Kodwani, 2006). Following this review, the possible outcomes are as follows: 3.5.2. Bidding strategy The field of tenders is magnetic to the eyes and pockets of numerous elements in the business part, for it holds most important business good fortunes. Regardless, whoever enters the field of delicate laws is certain to soon uncover those issues and decides that seem clear at the outset, are acknowledged in ash tones. Subsequently, the delicate laws is a field satisfied by complicated lawful processes, that set above water numerous and various issues from digression zones, for example, standards from the field of open law, matters in profit making, financing and morals (Bender & Ward, 2009). Clearly, the undeniable response is that when in doubt, the most reduced offer in a delicate is the first to be recognized. The purposes behind that are clear: while the most reduced bidder satisfied the limit states of the delicate, and submitted the offer that yields the most huge rebate for people in general power, and in this manner additionally to the overall population – then clearly its offered ought to be maintained as the cha. Therefore it was ruled, that when this bid is disqualified, for the reason of its being a low bid, the onus is transferred to the tender manager to demonstrate why did it not choose that bid, and it should present a reasonable and special argument which is relevant for that same matter. 3.5.3. Financial Strategy The company should be sure to take a close look at the working of the financial strategy that should be implemented (Bandy, 2011). 3.5.3.1. Cash Flow Management The income statement and balance sheet of a business may look great on paper, but if the cash is not properly managed, the small business can quickly go under. Part of the financial strategy of the business plan will detail how cash will be used in the business. This includes identifying an amount that will always be in reserves as well as how major expenses will be paid (Shapiro, 2009). By laying out the financial cash strategy ahead of time, it will make financial decisions easier about when to write a check and when to access a line of credit during normal business practice. 3.5.3.2. Purchases Any buys made through the business, especially substantial buys, ought to have nitty gritty rules in the strategy for success. This will figure out which buys will be made with money, a line of acknowledge and for a MasterCard. This strategy will also outline taking advantage of the terms of suppliers. For instance, if a supplier offers 45-day terms, the business will wait until the end of the term to make a payment (Alexander, Britton & Jorissen, 2011). In addition, the purchasing strategy should specify if approval is needed by a manager or board for purchases over a certain amount. 3.5.3.3. Collections In the event that the business is not appropriately dealing with its own particular receivable, it could be destroying to the budgetary soundness of the business. The budgetary methodology ought to detail the accumulations plan. This may include dedicating in-house staff to following up with overdue customers or turning them over to an outside agency. It will also specify late fees and if deposits are due before products and services are delivered for new customers. 3.5.3.4. Investments Although a specific investment strategy may not be able to be detailed in a written plan, general guidance should be given to management. This includes a percentage of money invested in high-risk portfolios vs. lower-risk portfolios (Solomon, 2010). The investment section of the plan will also include guidelines of when approval is needed to make changes to current investments or to liquidate investments to cover business necessities. 3.5.3.5. Considerations The money related methodology of a marketable strategy ought to be a general aide. While a few specifics, for example, regard powers might be plot, it will be troublesome to record for each conceivable fiscal situation that may emerge in the business. However, the financial strategy should be enough of a guideline to direct the basic staff of the business in conducting the financial aspects of the business from paying for purchases to making payroll. 3.5.4. Administrative Structure It is with this that the company will have to undergo some restructuring so as to ensure that there is better understanding of the deals that are about to be made. This includes having Mr. Morris and Havish more hands ion with the projects. This will encourage there to be a better understanding of what is going on (Wearing, 2005). They will be able to make critical decisions as things happen and this will make them more able to change the course that the company would take for the better. This will aid the company in having an ear that is close to the ground and helping in the sectors that need attention. 4. Discussion On looking at the company record it was found that the company was making too many rash decisions that could be detrimental to the activities of the company. This is because the company does not look deep enough into the companies that are joined. This is visible in the way in which the company that was allocated the 13th contract had to pull out of the market due to insolvency issues and this left the company with a tremendous debt and an unfinished project. The halt of the ongoing contract made the company’s foreseen profits reduce by a margin and result in there being a worse financial occurrence (Elliott & Elliott, 2012). The impromptu declaration of insolvency by a company that was a warded a tender gives someone that would like to be an investor in McTavish and Co. the idea that the company does not give as much thought and processing into the companies that are allocated tenders that could make or break the company. This is definitely a risk that the company was taking and just like all risks, there is the possibility of a negative outcome and this is seen in the insolvency (Fisher, Ury & Patton, 2012). Furthermore, with the termination of contracts, the company was forced to foot a total of £900,000 so as to make sure that another contractor would come in and access the progress of the tender. This results in a reduced cash flow for the company and thus causes it to reduce its projected revenue and profits. In the financial year of 2007, the bank took out a loan from the bank so as to be able to make some of the projects that were geared up to start. However, despite the fact that the company was a large one and had been in the industry, it was a negative result when the company managed to incur a loss that made its profits plummet to the reach lows of negative £154,000. Furthermore, this was not in the same year as when the loan was taken out but rather three years later in the year 2010. This made the company unviable and despite the profits that were incurred over the years, the company had reduced profits and less cash-in-bank money (Howells & Bain, 2008). The projected profits that the company was giving are not the profits that the company has made but from the strategic sale and purchase of commodities in the country. This includes the sale of a piece of land. The land in the fiscal year of 2008 was sold off by the company and managed to contribute a third of the company’s profits for the said year. This is a weak investment that resulted in the company remaining afloat despite poor turnovers (Koller, Goedhart, Wessels & Benrud, 2011). Furthermore, the waste of the products that are available in the industry has resulted in the cost of maintaining the company will rise higher than the revenue that is generated. This is evident especially in the year 2013 when the company could not maintain the profits that were generated over the previous year resulting in there being more losses to the company as compared to the year when the company took out a loan. Taking this into consideration, the contracts that were up since the year the company started trading; it is worth noting that there has been an increase in the amount of revenue that is generated from the profits. However, the wastage of land is what seems to be crippling the company. Taking the 8th contract as a case study, we may note that there was poor management of the land that resulted in less of it being used. This was a tender that was supposed to see that there was the construction of private housing for those that would like to buy into them, however, not all the land was used. This resulted in there being a waste of close to 6 hectares of land. This is land that could have been used to build more and more houses and thus increase the possible outcome from the houses. 5. Conclusions One can conclude that the company, despite the age and determination that was put into the constriction and bring up, is not serious. This is because the cash flow of the company is not one that can be predicted. Graphically, the company is one that is unsteady and unpredictable. It is probable that the company might rise to profitability at one point then drop to losses. This is an event that can be summarized to a problem in the management that is given the power to decide the direction that a company takes and whether it is the best direction. It would be best that the company was to incorporate the use of a precise way of telling the agreements and tenders that would earn it the most revenue and still maintain its financial integrity. This also includes the desire for there to be an easier and distinct way if tell g the scale and efficiency of the companies that were looking in to the purchase of the tenders. References Alexander, D., Britton, A., & Jorissen, A. (2011). International financial reporting and analysis (1st ed.). Andover: South-Western/Cengage Learning. Bandy, G. (2011). Financial management and accounting in the public sector (1st ed.). Abingdon, Oxon: Routledge. Bender, R., & Ward, K. (2009). Corporate financial strategy (1st ed.). Amsterdam: Butterworth-Heinemann. Bryman, A., & Bell, E. (2011). Business research methods (3rd ed.). Cambridge: Oxford University Press. Buckley, A. (2004). Multinational finance (1st ed.). Harlow, England: Prentice Hall Financial Times. Cameron, E., & Green, M. (2012). Making sense of change management (3rd ed.). London, U.K.: Kogan Page. Cameron, S. (2009). The business students handbook (5th ed.). Harlow: Financial Times Prentice Hall. Dawkins, J., & Lewis, S. (2003). CSR in Stakeholder Expectations: And Their Implication for Company Strategy. Journal of Business Ethics, 44(2-3), 185-193. Diamond, S. (2011). Getting more (1st ed.). London: Portfolio. Elliott, B., & Elliott, J. (2012). Financial accounting and reporting (15th ed.). Harlow, England: Financial Times Prentice Hall. Fargher Jr, J., 2007. Lean Manufacturing and Remanufacturing Implementation Tools. University Of Missouri. Fisher, R., Ury, W., & Patton, B. (2012). Getting to yes (1st ed.). London: Random House Business. Grinblatt, M., & Titman, S. (2002). Financial markets and corporate strategy(Vol. 2). McGraw-Hill/Irwin. Howells, P., & Bain, K. (2008). The economics of money, banking and finance (4th ed.). Harlow, England: Prentice Hall Financial Times. Koller, T., Goedhart, M., Wessels, D., & Benrud, E. (2011). Valuation workbook (5th ed.). Hoboken, N.J.: John Wiley & Sons. Osterwalder, A., Pigneur, Y., & Clark, T. (2010). Business model generation (1st ed.). Hoboken, NJ: Wiley. Rees, B. (1995). Financial analysis [Rees, 2nd ed.] (1st ed.). London: Prentice Hall. Rutterford, J., Upton, M., & Kodwani, D. (2006). Financial strategy (1st ed.). Chichester, England: Wiley. Shapiro, A. (2009). Multinational financial management (9th ed.). Hoboken, N.J.: Wiley. Solomon, J. (2010). Corporate governance and accountability (1st ed.). Chichester, West Sussex, U.K.: Wiley. Spear, S., & Bowen, H., 1999. Decoding the DNA of the Toyota production system. Harvard Business Review, 1-13. The Folk Group, 2009. Lean Manufacturing, 5S and Six Sigma (pp. 1-8). Doylestown, PA: The Folk Group. United States Environmental Protection Agency, 2003. Lean Manufacturing and the Environment: Research on Advanced Manufacturing Systems and the Environment and Recommendations for Leveraging Better Environmental Performance (pp. 4-68). Wearing, R. (2005). Cases in corporate governance (1st ed.). London: SAGE. Read More