Written Analysis & Communication Report on Harry’s Hi-fi Centre

TABLE OF CONTENTS

1. EXECUTIVE SUMMARY……………………………………………………………………………………………………3

2. SITUATIONAL ANALYSIS………………………………………………………………………………………………….3

3. PROBLEM STATEMENT…………………………………………………………………………………………………...4

4. STATEMENT OF OPTIONS………………………………………………………………………………………………..4

5. CRITERIA FOR EVALUATION.....………………………………………………………………………………………..5

6. EVALUATION OF OPTIONS………………………………………………………………………………………………5

7. RECOMMENDATIONS………………………………………………………………………………………………………6

8. PLAN OF ACTION……………………………………………………………………………………………………………...6

9. ANNEXURE-1................................................................................................................................................................7

10. ANNEXURE-2...............................................................................................................................................................8

11. REFERENCES................................................................................................................................................................9

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LETTER OF TRANSMITTAL

TO: Harry

FROM: Bhargav, Dadhich

DATE: 20/7/2012

SUBJECT: Detail analysis report on existing business as well other business opportunities.

PURPOSE:

As you sought solution for your future business planning, we have analyzed different options on certain criteria

The transmittal covers detail analysis of options available to you for business. Please scrutinize through report and ponder over our suggestion to go ahead with loudspeaker business.

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Executive Summary:

Mainly because of improper marketing strategy, a clash between partners and economic slowdown existing business does not seem profitable. So mainly a problem for Harry is, whether he shall go with his existing business or think about other options which may be more profitable to him, first one of them is he will get out of his current business and start manufacturing unit of loudspeaker and second is he will go back to his old shop and do the same business as he did earlier. As per analysis, the sales of current business is declining from $ 36000/month to $ 18000/month during last six months, while in case of going back to old shop and start up business there is required much effort and maybe it is not as much profitable as older one during starting period. As per the current market scenario in loud speaker industry, profitability of new manufacturing business is very high means approx. profit for 1st year comes around 23% therefore, it is recommended to go with this option by choosing proper target market & making suitable marketing strategy.

[Total Words: 183]

Situation Analysis:

By analyzing the case, we can say that currently Harry and his partners are facing problems to sustain into competitive market because of following major factors.

1. Improper marketing strategy2. Inappropriate target market3. Location of new shop4. Clashes between business partners5. Economic slowdown (annual GDP was 1%)

After evaluating declining sales of the business, they decided to restructure the existing business model to increase the profitability. We analyze the new business model and estimation prepared by Cyril, one of the partners.

o Analysis of new organized business for profitability:

By the analysis of data given in case we can produce following graph for getting idea of current as well as future sales of the company.

As we have seen that sales per month is declining from $36000/month in March to $18000/month in September at the time of reappraisal, also economic recession is going on and annual GDP is 1% hence people are not likely to buy luxurious item in this period therefore there is a high possibility of decrease in sales per month in next 4-5 months of future period.

As per the estimated profit statement, one can infer that to make minimum profit, sales per month should be kept minimum $19150/month.

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March AprilMay

JuneJuly

August

September

October

November

December

05000

10000150002000025000300003500040000

Sales per month of new organized business

Month

Sale

s pe

r Mon

th in

$

If Harry wants to continue with his existing business then following expenditures / liabilities incurred on him which he should keep in mind.

1. Payment of $10000 to each partner.2. Total estimated asset value ($112000) is much lower than it is calculated because of economic

slowdown, so higher depreciation of asset.3. Total monthly expenses around $3650.4. Lease amount of shop

Problem Statement:

Should Harry continue with the same business or think about other options which might be more profitable to him?

Statement of Options:

1. Acquire existing business: Harry should take up his existing business and expand the same by the use of effective marketing strategy & choosing proper target market.

2. Establish new business of loudspeaker manufacturing: Harry should break partnership and get out of existing business by taking $20000 and invest the same to open and establish a new business of loudspeaker manufacturing.

3. Go back to his previous shop and re establish the business: Harry should break his partnership and start same business in his previous shop by making necessary changes.

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Criteria for Evaluation:

We can assess the suggested options for this intricate problem with respect to some parameters and constraints .We eventually weight them on the basis of following each criteria.

1. Profitability2. Future growth3. Customer relationship

Evaluation of Options:

We analyze options by stating pros and cons of each and by assessing that up to what extent they can satisfy all above criteria.

1. Acquire existing business:

o Profitability: In situation analysis we infer that profitability of this business in near future (5-6 months) is very low because of economic slowdown, poor customer relationship etc. However if Harry revises his marketing strategy and build stronger customer relationship then it can become profitable in long term.

o Future growth: The shop is on lease and actual value of his assets come around $52000 instead of $112000.One favorable situation for Harry is that his partners will not make any influence on him as they will be out of the business. Harry knows how to grow business from his past experience, but looking at the market condition rate of growth of the same will be lower in near future.

o Customer relationship: Because improper location of new shop and poor marketing strategy customer relationship of Harry’s existing business is at its worst. Harry has to put lots off efforts in marketing, advertising and also by giving his personal time to establish strong customer relationship.

2. Establish new business of loudspeaker manufacturing:

Here we analyze, how much capital investment is required to start and establish this new business and what will be the profitability of the same. As per the Annexure-I, total capital investment required is $21,156, as Harry has already $20000 in his hand by getting out of his existing business hence Harry has to manage $1156 to start his new business.

o Profitability: As per Annexure-II, If Harry will manufacture and sell only 1800 loudspeakers in a year then also he will get return around 31% and net profit ratio will be 23.2% which will be considered as very good condition for newly establish business. Also as given in case there is 40% investment allowance and higher tariff charges incurred on imported loudspeakers which definitely motivate the buyers to buy loudspeakers from domestic manufacturing unit hence it won’t be much challengeable to sell only 1800 loudspeakers in a whole year.

o Future growth: As harry has vast technical knowledge as well as past contacts with customers hence he can definitely penetrate in to this new market by putting some efforts in advertising and building customer relationship.

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o Customer relationship: AS Harry had earlier experience of customer management, he can

use the same to make strong customer relationship, also because of his vast technical knowledge and customer oriented strategy he can make good relationship with customers.

3. Go back to his previous shop and re establish the business:

o Profitability : Considering shop rent, electricity, start-up inventory and other wages cost him another $5000, considering recession period in 1975 sales went to $100,000,gross profit $22000 and net profit $5400. So these figures show that there is a very good scope of profit for this option.

o Future growth: Future growth is inevitable if harry is following above discussed business model in this option.

o Customer relationship: As harry has moved to his previous location and he is investing another $5000 to renovate his old shop to accommodate more customers, he can very much lure middle and upper middle class customers.

By evaluating each option we can conclude the following table.

CriteriaOptions

Profitability Future Growth Customer relationship

Option 1 3 2 2Option 2 1 1 2Option 3 2 1 2

1 – For higher priority & 3- Lower Priority

Recommendation:

As we have analyzed several options and evaluated each option on each criteria, it is suggested to harry to go ahead with loudspeaker manufacturing business as future growth and profitability of that is business is much higher than that of other two.

Plan of Action:

o By use of capital, Harry gain from his existing business, Harry should purchase optimum land and hire optimum number (as per Annexure-II) of competent staff to kick off his business.

o He shall make tie up with some local dealers by giving them some attractive offers to make position in a market.

o Harry shall use of his past contacts with customers and companies to design its marketing strategy and feed back for value creation.

[Total Words: 1127]

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ANNEXURE – 1

A Fixed Capital in $ B Working Capital per month in $

(i) Land and Building (i) Staff and Labour

Built-up Area200 Sq.Mts. Sr No Designation Nos

Salary Total

Assembly, Testing and Stores150 Sq.Mts. 1 Manager 1 100 100

Office 50 Sq.Mts. 2 Supervisor 1 70 70

Rent Payable (per annum) 4800 3 Clerk/Typist 1 50 50

(ii) Machinery and Testing Equipments 4 Watchman 1 30 30

(a) Machinery 5 Skilled Workers 4 40 160

1 Buffing and Grinding Machine 100 6 Semi-Skilled Workers 3 30 90

2 Drilling Machine (1/2") 80 Total 500

(b) Testing & Office Equipments 4836 (ii) Raw Material Requirement (per month)

TOTAL FIXED CAPITAL 9,816 Total 3080

TOTAL CAPITAL INVESTMENT in $ (iii) Other Contingent Expenses

FIXED CAPITAL 9,816 Total 200WORKING CAPITAL FOR 3 MONTHS

11,340TOTAL EXPENDITURE 3,780

TOTAL CAPITAL INVESTMENT

21,156

Assumptions:

o The economic slowdown will obsolete in next 5-6 months.o Price of some equipment assumed on the basis of price of some other equipments.

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ANNEXURE-2

A Cost of Production (per annum)

1 Total Recurring Expenditure 64800

2 Depreciation on Plant/Machinery/Equipment @ 10% 400

3 Depreciation on Office Equipment/Furniture @ 20% 200

4 Depreciation on Jigs and Fixtures @ 20% 100

5Interest on Total CapitalInvestment @ 16% 3574

Total 69074

B Sales Turnover (per annum)

ItemQty (Nos)

Rate in $ Value

Loud Speaker 1800 5090000

C Profit per year (Before Tax)

Sales - Cost of Production 20926

D Net Profit Ratio

Profit per annum X 100 Sales per annum 23.2%

E Rate of Return

Profit (per annum) x 100Total capital investment 31.02%

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REFERENCES

1. http://www.econ.mq.edu.au/website_administration/ economics_studies_macquarie_university/Econ_docs/research_papers2/2004_research_papers/Abelson_9_04.pdf

2. 1970-79 are Productivity Commission data

3. http://www.abs.gov.au/Ausstats/abs@.nsf/Previousproducts/1301.0Feature %20Article482001?opendocument&tabname=Summary&prodno=1301.0&issue=2001&num=&view

4. http://www.archimedesfinancial.com.au

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