Guillermo Furniture Store Recommendation

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Guillermo Furniture Store Recommendation
Guillermo’s Furniture is small size furniture store with a low capital income and a simple business structure located in Sonora, Mexico ("Guillermo Store Scenario," 2012). The furniture store was the only manufacturer in the area before the ninety’s, when a new competitor from overseas entered in the furniture market with a hi-tech approach, and woke up the community of Sonora, increasing the cost of labor substantially, and causing prices to bottom out. As a result Guillermo watched his profit margin deflate as the price fell and the cost rose. Team B will analyze Guillermo’s alternatives to overcome this situation. The alternatives that will be covered in the analysis will be the current, high-tech, and broker alternatives. After the analysis Team B will select the best alternative for Guillermo’s store, and present a Pro Forma Cash flow budget for the next five years, along with a recommendation based on the results of the analysis. Current Alternative

The current alternative is for Guillermo to continue his operation as he has been for years. This has worked for the store in the past and will continue in the future. Guillermo’s business was going very well until competition moved in. Guillermo needs to think about what he needs to do for his business to succeed. First he will need to analyze his current situation, second he needs to create a budget, and a sales forecast for his business, including his current operations, and the effects of economic trends within and out of the furniture industry. Benefits of the Current Situation

Guillermo currently has a patented process for creating a coating for his furniture that will make the handmade piece unique, and luxurious. The process creates a common flame-retardant coat for the furniture, and upon further processing, the coating is complete and long lasting stain resistant, improving the product quality, and differentiating its product from the competition. This process will give Guillermo an edge against the competition. Another benefit is that Guillermo has hired a new accountant, who will help him to organize his finances, create a budget, and control costs. The accountant will also help him to understand his current position, and create a forecast of costs and sales for the store success. Guillermo is well known in the area, his reputation, and excellent customer service leads the new companies. Sharing the market however will be his chance to demonstrate his quality over the competition, without expending large sums of money in marketing promotions. Sensitivity Analysis

The current alternative calculation of NVP with the use of 0.12 or 12% over a payback time of 11 years for the capital rate was done because of the negative NPV of a ten year payback time. The eleven year period had a positive NPV, which means that Guillermo could choose to go with the current alternative. If he chooses to do so, his actual net income before taxes will be $42,577 (Guillermo Furniture Store Data 2012). By inspecting the company’s financials, Guillermo can make a financial decision to increase his sales and production levels. For this choice overhead costs vaguely changes, and the difference between net margins and overhead costs will provide a positive net income. If Guillermo can supply the needs of the consumer faster, and keep up with the competitors, he will increase sales for the business and give him the edge he requires. High-tech alternative

The High-tech alternative will require Guillermo to ask for additional financing, such as borrowing to cover the required changes on the production level. Although the high-tech alternative should generate an increase in revenue from $272,549 to $916,038 ("Guillermo Furniture Store Data," 2012); it will also require more capital to change the production type and level. The salary costs will increase $45,000 and that is a fixed cost (from $50,000- $95,000). Because of this and other reasons...
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