Business Studies

 

 

 ANSWER

Consultancy Report

 

 

 

 

 

 

 

 

Table of Contents

1. Executive summary        
2. Background information        
3. Sales        
4. Income from operations        
5. Financing        
6. Total overheads        
7. Credit policy        
8. Inventory        
9. Review of operations        
10. Ratios        
11. Miscellaneous expenses        
12. What could have gone wrong        
13. Trading profit summary

 

 

 

 

Executive summary

The following consultancy report on turner technics was done to analyze the financial position of the company. The report aims at giving recommendations that will maximize profitability and enhance efficiency. At a glance operations are inconsistent. There are periods where sales were impressive only to plummet the following month. The creditors are increasing and this putting a strain on the cash reserves.

The company will need to invest more in its marketing department. Instead of a declining budget, the company should increase its budget. The company also needs to increase the potential of income from other sources. There is a lot of potentials. Lastly, the company needs to invest in market research. The company is not aware of competitors and potential. This report will also identify the strengths and weaknesses of the company. It is anticipated that by identifying the strengths, the company will maximize its opportunities while learning from areas that need development.

Also, this report will include a trading report that will assess the impact of the measures suggested in the following six months.  The trading profit report will attempt to build on the consultancy report.  In the trading report, further recommendations will be given. the

 

 

 

 

 

Introduction

Turner technic is an electronic component manufacturing company. The company manufactures semiconductor circuits for electrical devices. Turner technics are contracted by several hardware manufacturers across the world. The company has secured several long-term contracts abroad.  The company has been in existence for the last 12 years. It is a family business with the shareholding. Several of their chips are secured with patents. The company has presented to the auditor its financial statement for the year. The auditor will get extracts from the records and use give recommendations.

Background information

 

Sales

 

 

Turner sales show a worrying trend. They are unreliable which makes budget and forecasting difficult. In August, the sales were 4120 and then in September, they double to 10950. The following three months the sales steadily rise. When we factor in July and November, the sales show an inconsistent trend.     Other sources of income were on a significant increase but in comparison to January of the same year, his revenue stream is not performing to its maximum.

Income from operations

In comparison to previous months, the company is improving. In February the company made a loss of 6969. A return to profitability is a welcome move. In the same regard, the company is carrying a cumulative loss of 2419. By the trend exhibited by the business, this loss will be covered by February and the business can declare dividends into March.

Financing

The company is financed by a mixture of shareholders equity and long term loans. It is the opinion of the audit team this mix is adequate sustainable in the long run. With the return to profitability, the business is in a good position to attract additional funding, especially to investors looking for a stake in the business. The business has gone for a cheap source of credit for the family.  This is encouraging given the difficult business environment.  Besides, the business is advised to negotiate with its creditors albeit in the short term.  An extension of the credit limit from 30 days to 60 days.  These will improve liquidity and fund operations. (Jain, 2011)  Additionally, this report is strongly against changing suppliers without proper due diligence. The current supplier should only be replaced if he is adamant to extend the credit limit and a competitor is willing to offer the same.

Total overheads.

This consultancy report notes that the business has been reducing its operational expenses at a steady pace. It is for this reason that the business has returned to profitability.  This report encourages the management to maintain the same austerity measures. Against the background of inconsistent sales, reducing expenses is by far the most reliable measure for the business to keep afloat.

Customer Service

The number of customer service calls was low.  It could be attributed to several scenarios.  The product is good or the telephone may not be manned at all times. Either way, the business needs to invest in customer care and customer service. (Smith, Taylor, Jonathan, 2004)  To ensure all inquiries are addressed, there should be an individual fully dedicated to customer service.  Additionally, a log of inquiries should be kept to establish any unique complaints that would request a global solution

Credit policy.

The balance sheet shows the company had creditors of 12, 9653. This is a matter of concern to the auditors. The company is generating income but creditors were not being paid. The auditor is cognizant of the fact that the company could have negotiated favourable debt terms. This could have worked when the company was in the red. However, with increasing profitability, the auditor is calling for a review of this policy.  The company doesn’t have a lot of loans in its books and this is encouraging

Inventory

The company does not have any inventory in its books and this is a matter of concern to the auditors.  This begs a lot of questions, does the company only service the orders the get? Are there customers who may have unfulfilled order? This problem is compounded in sales vs. orders.

 

Analysis of sales and the orders shows that not all orders were being fulfilled. This is the evidence of lost revenues. The company should convert all orders into complete sales. The company holds no stock for its components and this could be the reason why there are unfulfilled orders. The product of the company is generating a lot of interest and this evidenced by the huge number of inquiries. However, they are not resulting in any meaningful many sales. Almost 40% of the leads are not reaching full conversion to sales. The management needs to establish the reason and match the needs of the customer with the relevant products.

Review of operations

In the review of man-hours, there are 38hours of idle time. This is wasted potential that needs to be managed. There is either overcapacity in some departments or potential that is not being fully utilized. If there was potential for the idle hours to be converted to more time for marketing which will result in better sales(Dharmappa, 2018). There is little investment in research and design and for a company in technology; this is should not be encouraged. The company should invest more in R&D. tech companies cannot afford not to invest in R&D.

Ratios

Ratios

Liquidity ratio	July	august	September	October	November	December
ROCE	65	-2%	11%	22%	35%	37%
Current ratio	0.6	0.41	0.7	0.79	0.95	1.2
Gearing ratio	10%	10%	10%	10%	10%	10%

 

An analysis of the ratios follows the trend of sales.  The current ratio of the company is improving implying that the company can now comfortably convert its near cash assets quickly enough and to clear its creditors. This is a welcome move by the company.

Miscellaneous expenses

During this consultancy, the auditors would have preferred to have a look at these expenses. There was little documentation provided to this effect.  These expenses are as nearly as much as the rent. (Frost, Fox and Strauss, n.d.)   This was a matter of concern to the auditor. If they are of such significant amounts, they need to be having separate accounts to allow for more scrutiny

Customer care

There were few incidences of calls by the customers. It may be the case but the management needs to investigate what could be the reason behind this. Could customers be dealing directly with the sales team? If this was the case, there need to be established communication lines

 

What could have gone wrong with the company?

Sales and other sources of income

The main source of revenue for the company is its sales. From our analysis, we were able to establish inconsistency in sales. They can be traced back to incomplete business deals, under-serviced customers and lack of production capacity within the company. The sales department has displayed they have the potential to complete deals, but production and sales are not in tandem. The spike in September sales can be attributed to the sales in august not being fully converted. (Whalen, 2020). The sales team needs to be supported. Other sources of income are not properly exploited in this company. the figure was highest in January at 17. In June, this figure was at zero. In most cases, generating other income from other sources will require no new investments.  Failure by the company to explore this revenue stream could also be an explanation for the idle time.

Production

There is a huge disconnect in the production department. They don’t seem to match their targets. This could explain the idle time in the operations of the company. When there is idle time in the production line, a lot of losses are being experienced. Salaries will be paid, fixed costs will continue running to the detriment of the company.

Declining marketing budget

A declining marketing budget is not the right direction the company has been performing dismally and one would expect that the company would ramp up this department. The company cannot rely on inquiries only. There is also evidence to the effect that as the year comes to an end, there is the tendency to scale down operations and pick them up the beginning of the subsequent year(Roy and Viswanatham, 2016). The management should ensure that operations are a continuous process all year round. Scaling down operations perhaps due to the festivities in December could explain why at the beginning of the year the company a carried huge operational loss. More so this could be the reason the month of March had no sales. The effects of a declining marketing budget are being exhibited the following year.

Lack of investment in research and development

The company invested in training and this is encouraging. This will create capacity. However, the company failed to invest in research and development.  The company is not investing in market research. This is worrisome. The company does not know its niche market, the potential of the market or how the competitors re-performing. (Smith, Taylor, Jonathan, 2004)  .  Sales and marketing are performing blind. Their current efforts could be supported by availing data from the field. Investing in design of new product design is vital for the future. The kind of products the company is dealing with becomes obsolete after a few years. The company needs to be alive to the need for innovation.

Trading profit summary

Income Statement

item	January	February	march	April	may	June	Cumulative
Sales	11550	18100	24000	27850	31335	33756	14941
= other income	22	30	44	50	80	100	326
Total income	11572	18130	240444	28900	31415	33856	150658
Cost of sales	7100	9200	10005	13585	15056	23760	78706
overheads
wages
design			50	50	50	50	200
training		300	300	300	0	0	900
rent	50	50	50	50	50	50	300
Sales as marketing	3200	6300	6350	7400	8450	9500	41200
insurance
Finance	100	105	110	115	120	125	675
Miscellaneous	150	150	150	150	150	150	900
Total overheads	11596	19049	23202	26465	30900	35635	146847
profit	3600	2295	2995	5520	6236		20646
cumulative	964	1315	2301	4186	6446	9701	24913

 

 

The turnaround of the company had been hinged on increasing the sales budget, converting all leads into sales and revamping the production line. The production line was to increase its efficiency. The fixed costs remain constant. (Chiu, 2017) .  Also, the business has conducted a market survey and the data gotten has been vital in the turnaround process of the company. The consultancy report had recommended that the business diversify its other sources of income since they required no additional investments other than the already existing investment. also, the firm was advised to diversify its sales from its traditional markets.

Sales and marketing

From the above trading profit and loss account sales have been steadied by an increase in the sales and marketing budget (Bozkurt, Keser and Zülfikar, 2020). In comparison with the previous year’s figures, the sales have become consistent and predictable. With the sales team bringing in more business, the production line has can accurately plan for inventory purchases. Additionally, a reliable distribution process has been put in place to ensure that product is always available in the market

The above sales budget has been increased from as opposed and this is the effect.

The effect has been stability in the and steadying of the sales. The sales team was revamped and a team leader from outside the industry was picked to lead the team. At the moment sales are high because of the market research that was presented to the board. Going forward more of these surveys will be required to support the team.

Ratios

Ratios

Liquidity ratio	July	august	September	October	November	December
ROCE	7%	9%	11%	22%	35%	37%
Current ratio	1.2	1.3	1.4	1.6	1.7	1.9
Gearing ratio	10%	10%	10%	10%	10%	10%
Net  turnover	16.47	17.1	18.5	20.8	21.4	22.7

 

With strict fiscal discipline, it is anticipated that the ratios of the company will look as above.

Additional the company has invested in a research and development department. This department will grow the product range for the company to leverage on innovation. It was observed during the trading profit and loss account that the business had a poor distribution chain. There were no licensed distributors and this was contributing to poor sales. Distributors have been licensed and trained in customer care. This had significantly improved brand image and brand presence. The consultancy report further encourages the management to consider a commission-based structure to ensure that the distributors push for business. The distributors to need also to be encouraged t channel trade inquiries to the central office. In the consultancy report, it was noted that the company had a weak presence in social media.  This had not yet been implemented by the management. The company needs to have a strong social media presence on Facebook, Twitter and Instagram. The company also is having a continuous production line and is no longer reliant on producing to ship. The inventory is low but the quantities are slowly building up.

Strengths of this business

The company has emerged from a period of making losses and turned a profit. Many lessons have been learnt and this is useful information. The company has a unique product line and the market has been very positive about the product. The proprietors of the business have been investing in physical facilities within the company and this shows their confidence in the business.  The company has a good relationship with its suppliers and this reflects on the increasing credit terms. The products of the company have a ready market as evidenced by a lack of inventory. The company has an open system of keeping its books.  The management is encouraged to maintain the same tend of financial openness

The weakness of the business.

There appears to be no attempt to track down the sales of the company. This is explained by the total lack of sales in some months. Some employees in the company do not have contracts. This is highly unethical and highly demoralizing. Employees need to be assured of their futures at all times. The workplace needs to be inspected and certified and certified to be safe. The safety y of employees will prevent the company from exposure to unnecessary risk.  The company does not appear to be paying insurance for its plant and equipment. The figures may be in the miscellaneous expenses but that was speculative until the relevant documentation is provided. Insurance should be a vote head on its self.   The company shows no evidence of paying taxes. This is a risky trend and the management is encouraged to find a tax consultant who will guide them on compliance. The management should ensure proper computation of the taxes to avoid incurring heavy penalties.  The company does not have a budgeting process and therefore it is impossible to forecast income.

ProspectsProspects of the company

This consultancy report was intended to complement the efforts of the management in steadying the ship. The sales of the company were inconsistent. Some months would record impressive figures but the resulting subsequent months would experience a sharp decline in sales. There was inefficiency in the factory. All orders were not fulfilled and there was a lot of idle time in the production line. The other sources of income portfolio need to be explored, father. It can be expanded to form a fully functioning subsidiary. The potential it holds is immense. The company had been targeting the corporate sector for its business. Perhaps the time was ripe for the business to diversify and fully exploit the entire market. Also, the business has returned to profitability can look to buying off weak or smaller competitors. This expertise will be expanded to these other companies.  The company should also consider expanding into the overseas markets. However, this should be done on the background of market research. During the consultancy report, it was observed that the company was not comparing itself with peers in the industry. As much as it is still a private company, it was still vital the company competes with its peers as well. Going forward the business needs to have a budgeting process. This budget process should incorporate everyone. Every employee will take responsibility for the figures bestowed on to them. There will need to invest in new blood to bring fresh ideas to the sales and marketing team. This consultancy report recommends that the company appoints an auditor on an annual basis. This will ensure that the company conforms to the existing tax regime as set out in the law The books do not show any payment of taxes to the government. Additionally, the auditor will review operations for compliance and areas of improvement.

References

Berk, J. E., Harford, J., Ford, G., Mollica, V., & Finch, N. (2013). Fundamentals of Corporate Finance. Sydney: P. Ed Australia.

Bowden, J. L. H., Conduit, J., Hollebeek, L. D., Luoma-Aho, V., & Solem, B. A. (2017). Engagement valence duality and spillover effects in online brand communities. Journal of Service Theory and Practice.

Bozkurt, V., Keser, A. and Zülfikar, H., 2020. Factors Predicting Life Satisfaction Among Social Media Users. Sosyal Siyaset Konferansları Dergisi/Journal of Social Policy Conferences, pp.47-62.

Chang, H. L., Chou, Y. C., Wu, D. Y., & Wu, S. C. (2018). Will the firm’s marketing efforts on owned social media payoff? A quasi-experimental analysis of tourism products. Decision Support Systems, 107, 13-25.

Chiu, D., 2017. Internet Evolution. IEEE Internet Computing, 21(3), pp.78-81

Delli Priscoli, F., 2010. A Fully Cognitive Approach for Future Internet. Future Internet, 2(1), pp.16-29.

Dharmappa, S., 2018. Study of the Effectiveness of Online Marketing on Integrated Marketing Communication. Grin.Future Internet Editorial Office, 2020. Acknowledgement to Reviewers of Future Internet in 2019. Future Internet, 12(1), p.18.

Ross, S., Westerfield, R., Jordan, B., Roberts, G., Pandes, J. and Holloway, T., n.d. Fundamentals Of Corporate Finance.

Thibierge, C., & Beresford, A. (2015). A practical guide to corporate finance: Breaking the financial ice. Houndmills, Basingstoke, Hampshire; New York, NY: Palgrave Macmillan