The Business Position and Performance - Essay Example

BUSINESS Table of Contents BUSINESS Executive Summary 3 Introduction 4 Regulations 4 Management 6 Finance and Accounting 7 Financial ment 8 Problem Solving 10 Challenges and Problem Solving 12 Conclusion 14 References 15 Bibliography 16 Executive Summary It has been observed in the analysis that the issues related with regulations should be dealt with prime importance by Mike for his business in Sunnydale. The management needs to be changed as per Mike’s requirement for the business. The financial data should be assessed for better understanding of the business and to confirm that the rules and regulations are followed as per the accounting standards and US GAAP. The paper also put forth that certain statements need to be evaluated to find the business’s position and performance. The problem related to the business and its surrounding needs to be evaluated through certain models and optimum solution should be generated. There are certain challenges in this industry, it needs to be identified, evaluated, and alternatives should be developed accordingly. It is also recommended that Mike should have a dedicated and expert team of professionals which would comprise of the perfect blend of youth and experience with the right attitude and talent. Introduction The business that has been purchased by Mike is situated at Sunnydale, Illinois, a mid-sized city with a busy downtown business district and a large university. In the same area of the city, another shop also thrives, named Queequeg’s Coffee. It is a large national chain of coffee. The biggest competitor for Mike is expected to be this coffee chain. Regulations The Sunnydale falls within the periphery of the California Rules and Regulations Act. The business setup needs to follow this act for its successful operations. Since, Mike is going to take over the business; he needs to comply with certain general issues regarding the business rules and regulation of the locality. The general query would be of identifying the business that he is taking up, is complying with the legal regulations or not. It is also to be seen if the business is driven by the benefit of the enforcement of the regulation. Mike needs to find out the tenure of the business and that of the license and their compliance with the regulations of the local authority. The tax provision should also be considered before going in with the business. It needs to find out from the tax authority, the tax related to the income of the business and other relevant taxes like water tax, local taxes that are compiled with the regulations. Any outstanding amount regarding the payment of the tax is due or not is to be verified and if so the period and the amount should be calculated. The next important issue is that of the location and the tenure of ownership. It must be checked if the location status is legally acquired or whether any dispute related issues are still in the court of justice. If the shop is on rental basis than the agreement with the owner and the conditions needs to be accessed and scrutinized along with the terms and conditions. Mike should take care to ensure that the place is owned and the legal compliances with the land regulation Act are scrutinized. The permission granted by the local state authority has given a clearance certificate for business in the region or not need is also to be verified. Regarding the issues related to the environmental need are also to be assessed as pollution has become an important issue for the business organizations all across the globe. Mike needs to find out if the business has got a pollution free certificate from the pollution department of the local authority. Last but not the least, it is important to find out who are the stakeholders of the business and the terms and conditions with which they are attached to the business. The contract made with the investors under the terms also needs to be verified (Miller, 2007). Management The management of the business has to be revalued. The old policies and the procedures need to be analyzed. The contents need to be addressed properly for evaluation. The management needs to be restructured as per the new policy formulation and strategy as and when required. Since the old management team has the traditional perception of the business, it needs to be changed as per Mike’s way of dealing the business. For managing the coffee shop and its daily operation, it is obligatory for the staffs to be determined and work in an organized manner with full energy level to satisfy the consumers. Certain factors are needed to be decided for proper management of the shop. Management of the human capital is very important. The hiring policy of the organization should be in line with the organizational objectives along with adequate scope for training and development. Managing of the vendors and keeping track of the inventory is very important. Inventory management will make the inflow and outflow of different flavored food and beverage items run smoothly without any shortage of items and flavors. Maintenance and cleanliness are the other success factors for successful operations of the shop. The other most important thing is that of proper advertisements of the products available and merchandize accessories in order to promote sales. The management should be creative enough for additional services and promotional measures for the outlet. The pricing strategy, food placement and specialty development should be considered for making the store superior compared to other stores (Walden University, 2010). Finance and Accounting The financial statement depicts all the details about any organization. The audited Balance Sheet and the Profit & Loss Statement for the current and the last three years should be analyzed in order to review the performance and the position of the business. It will reflect the business overview and also show the trends of the different financial years. The profit or loss trend can be easily identified and the future trend can be predicted too. Mike needs to check whether the statements made are according to the accounting standards set by the accounting bodies of USA. The new owner needs to see in which accounting pattern the books of accounts are being prepared and if Generally Accepted Accounting Principles (GAAP) is being followed. Mike should hire an auditor to check the authenticity of the books of accounts. The financial status needs to be assessed in order to find out the proportion of equity and debt. The debt percentage needs to be identified. If any loan has been taken, external or internal, has to be found out along with the rate of interest and other terms of the loan. This information will give the management better understanding of the business strategy, especially regarding the financial decision. From the financial statement the new management can also find the different ratios which would give a clear picture of the financial performance in the near future. (Coffee Research, 2010). Financial Statement The statements that need to be scrutinized are Balance Sheet, Profit & Loss Account, and Cash Flow Statement along with Ratio Analysis Statement. These are the basic statements of accounts that need to be presented for better understanding of the business. This shows the position, performance, liquidity position and future requirement of the business. From the Balance Sheet, one can judge the position of the Current Assets, Fixed Assets, and Investments. It will show the liquidity position, non-liquid position and convertible short term and long term investments which are required in the business from time to time. From the Profit & Loss Account, the performance of the business can be observed. It shows the amount of profit that has been earned in the period of last three to five years time. The expenses attached to it give a brief idea about the cost centre that will be prevalent in the future. It will also show the trend of profit or loss that occurs over the period of time. Future analysis can be conducted based on various assumptions. The Cash Flow Statement briefs about the liquidity within the business. It provides the inflow of cash and out flow of cash on daily, monthly, quarterly basis for analysis of liquidity in the business. From this, one can identify the cost centers and the revenue centers. Since, it is a coffee shop, daily expenditures and revenues are generated and it needs to be identified and a better plan has to be developed to minimize the cost and maximize the revenue for enhancement of the profitability of the shop. The Ratio Analysis Statement will provide various ratios that will determine the standard of the business. It needs to be compared with the ratio standards given buy the Accounting Standards of the USA (GAAP). It should match with the standard ratios. If it is not the case, the reason needs to be identified and alternatives need to be developed for maintaining of the standards of the business. The activity of the business can be measured through these ratios. The ratios like debt-equity ratio, earning per share, working capital, asset turnover and price earning ratio gives a general idea of the activity (Miller, n.d). Problem Solving The Fish Bone Model can be used for the analysis of the problems and their solution related to the coffee shop. Causes Causes The model shows the different factors that are included and the causes associated with it for getting the effect (performance of the organization). The causes related to it need to be terminated or different alternatives that are need to be developed in order to reap maximum benefit. This way it will provide the entire alternative as per the issues related. For achievement of the success, the organization needs the resources like man, management, method, measurement, material and machines. The causes or the forces that affect them in performing the task need to be eliminated. The process involved in the model includes the identification of the problem, measurement, analysis and control measures. The model says to improve the process or to delete the factors if improvement is not possible. From this Fish Bone diagram, it is easy to locate the problems and arrange them systematically and the alternatives are developed step by step for formulation of the solution. It is mostly used in Japan as it a Japanese concept though it has been received world wide fame in the recent days (FIP, 2010). Challenges and Problem Solving The challenges that are faced for any business organizations can be overcome with successful implementation of one model or the other. For the business of Mike, Twin Cycle Model is applicable. According to the Twin Cycle Model, one needs to focus on the evaluation of the environment that is present around the business at the outset. The business that has just been purchased; is surrounded by the university and its competitor is a renowned coffee chain. The environment related to the competitor along with the consumer behavior of that area needs to be identified. The future demand and barriers are also to be considered. According to the evaluation and forecasts, the goals of the organization as well as the management needs are to be settled. An action plan should be developed for implementation of the objectives and set goals. It is important to constantly monitor the whole process as it is a coffee shop which runs with quick delivery of service and customer satisfaction. After this, the overall process requires to be scanned for any barriers and causes that can be controlled or changed as per the situation. Accordingly, new plan and strategy requires to be made and the Twin Cycle Model needs to be repeated for success of the business. For the problem solving, Mike can use the Porter’s Five Forces Model. According to this model, there are five sources that affect the business. It is the buyers’ purchasing power, suppliers’ purchasing power, threat of substitutes, barriers to entry and internal industry rivalry. Mike has just purchased the business so there is no threat for his entry in the same industry in the same area. The consumers of that area are composed of young age-group especially the students of the university and professional working group of people of the university. So to attract them, a plan of action needs to be developed for these two categories of consumers. As there is a competitor, so Mike needs to analyze the consumption behavior of the consumer of that place to satisfy them and to ensure repeat purchases with a set of loyal consumers for the business. Since, there are two shops, the supplier might be same or different but Mike needs to get its resources at a low cost to reduce the price of his offerings than his competitor. The price change makes the consumer switch to other products. This is the substitute effect which leads to lose of the profit of the company or the market share. Pricing policy plays a major role in inclination of consumer towards the shop. The internal industry rivalry in this current situation is comprised of the two shops only, one being that of Mike and the other is the retail outlet of the coffee shop chain. The pricing policy, offerings, promotional activity, satisfaction level, quality of service and food makes the environment more competitive. So these issues need to be analyzed and according to the market changes, different strategy need to be implemented, controlled, and monitored and subsequent action plans need to be designed. Conclusion The problems discussed above can be solved by the approaches of different management techniques that need to be implemented by Mike. The mere appliance of models and techniques might not solve the problem unless the people in the management are creative enough, energetic, action oriented and focused. Since, it is a coffee shop it needs to be focused on increased service and satisfaction level of the consumers. It is the management that will lead the road to success if properly managed and controlled by Mike’s thoughts, perception and attitude towards the business. It is advisory for Mike to employ or consult a professional expert in assisting him in complying with the rules and regulations for the business. For the management of the shop, it is expected of him to hire experienced people who can be able to analyze the consumer behavior and act quickly. For the accounting problem and analysis perspective, Mike needs to get a chartered accounting professional for better understanding of the financial position and performance of the business. It will give him the facts in compatible form which can be understood by everyone. Mike should have a set of professional team to take care of the various aspects of his business. Fresh management graduates with the zeal of working hard and integrity along with adequate knowledge of the consumer behavior of the locality can be an essential part of Mike’s team. Also, Mike should appoint such persons who have considerable experience in the business segment of retail coffee shop. With adequate funding and proper commitment, it is expected that the coffee shop will be a major hit in the due course of time. References Coffee Research, (2010). Coffee Consumption Statistics in the United States. American Coffee Consumption Trends. Retrieved Online on July 19, 2010 from http://www.coffeeresearch.org/market/usa.htm FIP, (2010). Using Fishbone Diagram as Problem Solving Tools. Factory Improvement Programme. Retrieved Online on July 19, 2010 from http://www.ilofip.org/GPGs/Fishbone%20Diagrams.pdf Miller. L. R. & Jentz, A. G., (2007). Business Law Today: The Essentials. Cengage Learning. Miller. H. M. & Orr. D., (No Date). Mathematical Models for Financial Management. The University of Chicago Booth School of Business. Retrieved Online on July 19, 2010 from http://www.chicagobooth.edu/faculty/selectedpapers/sp23.pdf Walden University, (2010). How to Start a Coffee Shop Business. Career Development. Retrieved Online on July 19, 2010 from http://thinkup.waldenu.edu/career-development/career-planning/item/11518-how-to-start-coffee-shop-business Bibliography Godsmark, E. & Et. Al, (2004). How to Open a Financially Successful Coffee, Espresso & Tea Shop. Atlantic Publishing Company. FDA, (2010). National Coffee Association of USA, Inc. NCAUSA. Retrieved Online on July 19, 2010 from http://www.ncausa.org/i4a/pages/index.cfm?pageid=39 Ho, Y. S. T. & Yi, S., (2004). The Oxford Guide to Financial Modeling: Applications for Capital Markets, Corporate Finance, Risk Management, and Financial Institutions. Oxford University Press US. Osterwalder, A. & Pigneur, Y., (2009). Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. John Wiley and Sons. Pakroo, H. P. & Pakroo, P., (2010). The Small Business Start-Up Kit for California. Nolo. Read More