Managing Business Enterprise: Westbourne Lesisure Center - Case Study Example

REPORT WESTBOURNE LESISURE CENTER (UK) To, Mr. XYZ, Chairman and Proprietor, Westbourne Leisure Center Every organization (except for Social Welfare Institutes) around the globe has one common goal and that is to make appropriate profit, so that it can keep its owners happy and the business does not liquidate in the short or the long run. But as all organizations strive for its profit objective, they may have to face many other challenges and obstacles that need to be cleared out before those objectives can be grabbed. To create more return for the owners of the company, usually expansion of the business is considered a feasible option to increase the return for the owners of the company. The option for Westbourne (UK) to expand and the problems that it may have to face can be analyzed further. Potential Organizational Problems and the Return on Capital Westbourne is currently a small leisure center requiring an expansion, an expansion to the business opens great profitable ventures for a company but along with these benefits, some other costs may have to be incurred. The expansion in Westbourne may require additional staff members to be hired in the company so as to cope with the increased number of customers. The additional staff would have to be paid wages, thus increasing the expenditure for the company and might as well reduce the profit. This reduction in profit can be avoided by adopting different pricing strategy i.e. either charging high from the customers (negative impact being the reduction in customer due to higher prices that they may have to pay) or by using other alternative strategies such as investing in advertisement of the business which may increase customers for the company. The problem that may arise because of advertising is of the huge cost that would have to be tolerated by the company, usually advertising requires a lot of fortune to be invested and for the success of any advertisement it is necessary that it may be kept on for a longer period of time to create more awareness amongst the customers. The owner of Westbourne may have to face the risk of liquidation all alone if the company may prove unprofitable in the future. The owner of Westbourne (UK) would be exposed to the liability of its entire business and may go broke because of the lack of funds available to meet its day to day obligations. As with any business, the owners of the company require a desired amount of return on their investment before any investment is made into any project. The financial figures of Westbourne suggest that the company seems to be profitable. This profit is the residue amount after deducting every possible expense. The return suggests that the company may be able to generate a return of more than 20% of the capital invested in it. The calculations below support the verdict. FINANCIAL ILLUSTRATION WESTBOURNE (UK) STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20X0 Before Extension £ Revenue 250,000 Less: Costs of Goods or Services Sold Wages (10 * 9,000) (90,000) Gross Profit 140,000 Other Expenses: Electricity (30,000) Advertising (55,000) Miscellaneous Expenses (5,000) Profit before Interest and Tax 50,000 Tax @ 30% (15,000) Net Profit 35,000 WESTBOURNE (UK) BUDEGETED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20X0 After Expansion Budgeted £ Sales 300,000 Less: Cost of Goods/Services Sold Wages (12 * 9000) (108,000) Gross Profit 192,000 Other Expenses: Lease Payment (25,000) Electricity (35,000) Advertisement (65,000) Miscellaneous Expenses (5,000) Profit before Interest and Tax 62,000 Tax @ 30% (18,600) Net Profit 43,400 The return on the capital that is to be injected can be ascertained using many different techniques. The technique that I have adopted is to calculate the Return on Capital Employed ratio (using the new capital as the capital employed figure in the denominator and the profit before interest and tax as the numerator). This can be illustrated in a formula as: Return on Capital Employed = Profit before Interest and Tax ÷ Capital Employed Before Extension After Extension £ £ Return on Capital Employed (50,000/250,000 * 100) 20% (62,000/250,000 * 100) 24.8% The above working clearly suggest that the expansion may seem worthwhile in financial terms as it has the tendency to increase the profit and can increase the return on the capital by approximately 5%. Demographic Trends Age, sex, race, marital status, household status, living arrangements, income, occupation and education level etc are the major demographic factors which can affect the business expansion (Siegel, 2002). Demography is the study of human population, their behavioral aspects and other movements in the population. Nowadays many websites are available that can help in conducting demographic research; this sort of research is usually done by businesses to have an understanding of the population in that area where their product or service is to be launched. This helps in deciding whether to start the operation of the business or not as the people in that particular area are the buyers of the services provided by any business. Westbourne (UK) can conduct surveys to get the perception of the population regarding their business expansion and how much their business is admired by the customers. Questionnaires can be used to get the public idea about the expansion. Besides this many population censuses can be used to analyze the varying demand of customers e.g. which population age prefers the usage of the leisure center services and the recent trend of population can be seen via the recent available census. Staffing and Total Quality Management Human resource management (HRM), or staffing, is the management function devoted to acquiring, training, appraising, and compensating employees (Staffing as a Management Function, 2010). It is important to give emphasis to the staffing process while expanding the activities. The right people at the right place at the right time, is always important for the success of any business. An organization should respond positively to the rapid changes happening in the business world and for that purpose, competent staff is an essential ingredient for a growing organization. Staffing and Total Quality Management can be merged to gain greater efficiencies in cost, profits and better quality service for the customers.“Total quality management (TQM) is an integrated organizational effort designed to improve quality at every level. However, defining quality is not as easy as it may seem, because different people have different ideas of what constitutes high quality” (Total Quality Management Chapter 5). TQM was initially adopted by the Japanese with the basic aim of controlling quality. This process of TQM can be positioned at the heart of the servicing process of Westbourne (UK) by eliminating inspection (which is considered a separate function) and making the workers or the staff members responsible for the quality of their own output. This way, the worker would be more concerned about his work quality and would work accordingly as he would be held responsible for it. Total Quality Management aims at continuous improvement and also helps in producing job enrichment. Conversion to Private Limited Company – The necessary steps Limited company owners are protected from the personal liability of business claims and debts. Partnership is a common form of business association used to create Private Limited Company. A private company is one that does not offer its securities to the public and it is not registered as a public company. Private companies usually are small enterprises in which some or all the shareholders are also the directors and vice versa. This is a way of combining ownership with management. There are fewer rules for private companies as compared to a public company. There is no minimum capital requirement of the law for a private company. A private company limited by shares is the most suitable type for a business such as Westbourne (UK). The main advantage that can be gained by converting into a private limited company is to be a corporate entity separate from its members, giving them the protection of limited liability. The owner can alone register Westbourne as a private limited company but to gather better capital, the best way would be to offer shares to some other people as well so as to make them shareholders and hence owners of the company, the drawback of such a share issue would be that the authority of the existing owner would be divided amongst all the new members to be incorporated. To avoid such situation, the existing owner can keep the majority shares in his hands so that he keeps the major holding and the major authority of the business. Westbourne (UK) can generate a return of more than 20% of its capital employed after the expansion, though it is already having a return of 20% without the expansion. Besides the return and the expansion there are many other issues such as better staffing and Total Quality Management that can lead to cost efficiencies. Conversion to private limited company has its advantages and few disadvantages, all this is considered in the report above to give a better understanding to the owner so that he can draw a profitable decision. References Business Expansion, (2010) http://www.enotes.com/small-business-encyclopedia/business-expansion Continuing Education of the Bar--California. Forming & Operating Limited Liability Companies: Program Handbook, January 2007. Oakland, Calif: Continuing Education of the Bar, 200 Siegel Jacob S.(2002) Applied demography: applications to business, government, law and public policy http://books.google.com/books?id=a5Ax1oRbkDMC&printsec=frontcover#v=onepage&q=&f=false "So You Want to Be... - Business Analyst." Financial Management : the Magazine from CIMA. (2009): 62 Staffing as a Management Function (2010) http://www.cliffsnotes.com/study_guide/Staffing-as-a-Management- Function.topicArticleId-8944,articleId-8891.html Total Quality Management Chapter 5 http://www.wiley.com/college/sc/reid/chap5.pdf Read More