SimVenture Cashflow Crisis – 1500words Consultancy report and 1500words Trading report
1. Calculate as many accounting ratios as possible for the month of June and explain how these ratios are evidence of a “cashflow crisis”.
2. Analyse the History of the previous six months trading and identify exactly what has gone wrong and when. Graphs and tables will be useful in pinpointing this evidence.
3. Formulate clear recommendations into an action plan for improving thesituation.
You should submit a formal Consultancy Report in which you explain 1, 2, and 3 in an attractive, easy-to-follow way. Note that 1 & 2 are about evidence, so you will need to include ratios, graphs, and tables, but that your explanation and interpretation is just as important. In 3, you action plan should be as clear as possible.
Activity 2
Using the same Cashflow Crisis scenario and trade the company for a further 6 months – until the end of December – following your action plan above. Your aim is to have a monthly turnover of £10,000 and a monthly profit of £1,000. You should also have at least £7,500 in the bank.
Submit a formal Trading Report in which you explain how successful your action plan was and demonstrate whether you have succeeded in achieving the aims outlined above. Like the previous report, this should be evidence-based, so ratios, graphs or tables will be necessary.
* must have table of concents
– Executive Summary
– introduction
– Part A. consultancy report
a) * must have account ratio (current ratio, asset turnover ) I sent u in files , explain as edivanve
b) Analyse previous six months trading and identify exactly what has gone wrong and when. Graphs and tables pinpointthis
evidence
C) recommendation and action plan ,(Clear and specific recommendations in an action plan for improving the situation.)
– part B: trading report
a) Executive Summary
you explain how successful your action plan was and demonstrate whether you have succeeded in achieving the aims outlined above. Like the previous report, this should be evidence-based, so ratios, graphs or tables will be necessary.
b) . Evidence provided in form of graphs, ratios, tables and interpreted – explained.
C) Formal report format with conclusions.
Consultancy Report for Sim Ventures
Table of Contents
Background of Financial Position. 4
Sales Targets And Budgeting. 13
Market And Consumer Research. 13
Trading Report at the End of the Year 15
Executive summary
This consultancy report on Sim ventures was commissioned to improve the profitability of the business. The business has been operating at a loss over the last few months. The report studied the financial position of the business and reviewed the operations as well. It was noted that the major cause of the loss was poor sales and a soaring cost of doing business. In the mouth of March, the businesses recorded no sales, and this has led to a debt crisis. Creditors are increasing.
This report recommends that management negotiate better credit terms with the creditors to improve the fortunes of the company. Secondly, the sales team should do at least $ 30,000 a month by maximizing on existing leads. Lastly, the report has recommended how to improve the operations to have a long-lasting profitability plan.
Introduction
Sims ventures are an IT solutions company that designs and develops innovative learning solutions for corporate training and the education sectors. Sims venture computer solutions are in use in over 40 countries globally. Aim ventures are award-winning software solutions that have won several awards for its innovative products. The company was formed in the UK by the Harrington brothers. Due to the uniqueness of Sim ventures products, several patents are under consideration.
Background of Financial Position
The company had been on a solid financial position, but its fortunes have dipped lately.
In the month January, the bank balance was 10,502 in February it decreased to 2935. However, in March the balance dipped 1872 the figure improved to 2206 May. In June the figure was 1553. In June the figure was 2748. This low bank balance implies that the company is not able to meet its short term debt obligations; this is compounded further by the need to change suppliers. The current supplier is called a source line. They offer a 10 % discount on orders above 2000 and a credit period of 30 days. They have been the sole suppliers. Currently, the company requires 872 units from source line and therefore does not qualify for a discount.
Financing
The company has received a loan from the family for 2000 with no new investors. To date only 13% of the debt has been paid, leaving a balance of 2460.
Creditors
The company has some 5610 in debt with the distribution as follows,
Below 30 days 4080 and between 31-60 days, 1530. With the current bank balance, it is evident that the company has serious liquidity problems. However, since the March of April when there were no sales, the creditors have been increasing. They have been doubling since with each passing month.
Profitability
The company has an inconsistent profitability record and there are no visible trends.
In January the company made a loss of -2508, in February the company made a loss of -6968, in March the company made a loss of -569. In April the company made a loss of 243. However, in May the company has a turnaround and made a profit of 779. In June the profitability fell to 130. However, against this backdrop, total income has been increasing steadily. A decline in profitability has led to a declining income and thus stretching the cash floors to the red
A comparison of the income, cost of sales and overheads for the, reveals the underlying problem. Income has been steadily rising which is consistent with the cost of sales. However, the overheads decline in May and the spiked in June. At the same time, profitability in may increase and fell in June on account of the unpaid overheads. This will also explain why the company has some amount of money in the over 31-60 category.
Liquidity Ratio
Liquidity ratio is gotten by calculating current assets by current liabilities. This comes to, 5550/8358 = 0.66
| Liquidity ratio | January | February | April | May | June | July | |
| ROCE | 65 | -2% | -6% | -11% | -13% | -19% | |
| Current ratio | 0.6 | 0.41 | 0.33 | 0.21 | 0.19 | 0.14 | |
| Gearing ratio | 10% | 10% | 10% | 10% | 10% | 10% | |
| Net turnover | 16.47 | 15.1 | 14.1 | 12.9 | 11.1 | 10.9 |
A look at the ratios shows a business that is slowly on a decline. The return on capital is on a decline showing there is poor utilization of invested capital. The current ratio is on a decline signifying the business will struggle to meet its short term liabilities (Dharmappa, 2018). . If this goes unchecked, the business risks going into insolvency. The gearing ratio is one consistent figure because the company has only one source of debt. The family loan. The net turnover is health. However, it is not low because of the right reasons. It only goes to show that the company has a lot of potentials. The product is viable.
Sales and marketing
Research
The company has undertaken one competition research and one market research against a potential of eight. This will pose a challenge to the company for the following reasons. Lack of market research means the company has been operating in the dark, without understanding consumer sentiment. Furthermore, the company has not been utilizing its strengths and opportunities.
Sales Channels
The company has no distributor channels and no personal selling during the month. This is perhaps the biggest challenge the company is experiencing (Frost, Fox and Strauss, n.d.) . The lack of a well-defined distribution channel. A lack of distributors would mean that Sim ventures have intentionally bypassed licensing distributors. Perhaps this is a company policy. But at the same time, the company should have a very personalized relationship with its customers. Also, the company made no sales in March but there were costs of 573. In February no sales prospects were resulting in no sales in March.
Marketing Strategy
The company has been targeting the corporate sector and mainly the service sector. The company has been strong on direct leads with over 200 contacts. The company has been advertising in the local papers and directories. In its marketing strategy, there was no evidence of social media for the company.
Operations
In the current month, the company has no product in stock or any components in stock. This is a matter of great concern. This is for the following reasons. If an existing customer asked for more of the product for immediate delivery, the customer would have to wait for at least four days to have a product shipped out. Currently, there are four production lines but none is currently running. The production line is the source of the fixed costs but it is underutilized.
Organization
The employees have contracts and there is no safety measure put in place. However, customer clients exist. The company is properly registered. The business does not appear to be audited. If there was an auditor he could have pointed out the issues that have been highlighted in this report
Conclusion
Strengths
The company has a very unique product offering that the market loves. However, the company has not stretched it to explore the market to fully explain the potential. Secondly going by the number of leads, the market has responded positively to the product. Thirdly, the location of the business is at an optimum location that has significantly contributed to a reduction of the operational expenses. The company enjoys reasonable credit terms with a supplier who takes a short time to implement changes to the consignment. The market for the company’s products huge which is a challenge to the company to manage to fully maximize the potential
Weaknesses
The sales are very low with some months lacking in sales completely. This shows a lack of coordination in the execution of the sales plan. It appears as if the department runs on its own. Thirdly, the employees do not have a contract. This is highly unethical and very demoralizing to the employees. Besides, the workplace has not been certified as safe. It puts the management at risk should an accident happen during the operations. The business is not insured and this is a huge risk to should a disaster befall the company. The company does not appear to audit its operations and there are so many gaps in the running of operations. The company appears not to pay any taxes despite being properly registered.t
Recommendation
Location and Resources
It is the view of this report that the location of the business is ideal. This is evidenced by the lack of the need to spend anything on transport expenses. The proprietor of the business visibly a stressed man, we recommend he gives his accountant more managerial responsibilities to relieve some of the stress. The accountant is familiar with the business will offer advice to the proprietor. Additionally, if the proprietor is shouldering a heavy burden running operations, he should consider delegating some of the responsibilities to more experienced staff to concentrate on the turnaround
On the usage of equipment, there is overcapacity at the production lines. There are four production lines and they are idle most of the time. We do recommend the management consider disposing of or hiring out the excess capacity. Any excess employees should be laid off with the equipment. Alternatively, and this is the best option, the selling team should solicit for business to fully utilize the excess capacity. There was also no evidence to show that the business was insured. This report strongly recommends protects its workers and equipment against accident and hazards like a fire.
It is recommended that all employees be awarded contracts. The contracts should clearly state the remuneration and the terms of the contract(Whalen, 2020). . With job security, the employees will be motivated. Additionally, a survey of employee salary should be done to ensure that remuneration packages are. In line with roles and duties if not the industry standards. Due to the poor financial state of the company, all recruitment of new staff should be suspended until a turnaround is fully affected.
The proprietor is advised to adhere to laid down safety procedures at the workplace. This will include providing protective equipment and training for the staff. The premises should have well-labelled evacuation points in case of a disaster. This report strongly recommends the need to have regular safety drills as a way of ensuring employees are aware of their roles and responsibilities during an accident
Financing Operations
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.
Accounts
The books of account look fairly kept and are a true reflection of the business. The books do not appear to be audited and the management is strongly advised to engage an external auditor on a contract basis
Banking
The business operates from the bank and all monies can be traced to their transactions. This should be maintained. The restructuring process will be an expensive affair and a bank loan should be considered to bolster short term liquidity. The business does not have a commendable bank loan. However, as the business expands into the future a bank loan will come in handy
Forecasting
There appears to be a total lack of Forecasting. This is evidence by the lack of sales in March. The business needs to have an annual budget which will control the profits. Additionally, the budget will give sales projections to the marketing staff. There are some 200 direct contact Leads but less than a dozen have been converted to business. Forecasting will help the business track the repeat business when it falls due
Sales Targets And Budgeting
The sales by the marketing team show a lack of coordinated selling plan. The sales team is the drivers of business should have ambitious targets as opposed to the current figures. An appropriate budgeting model should be adopted (Roy and Viswanatham, 2016).. A monitoring and evaluation tool of these targets should be put in place. With over 200 leads, this report suggests that the team has targets selling at least $30,000 in September.
Market And Consumer Research
Consumer and market research enables a business to pit itself against its rivals while aligning itself to consumer needs. Through such a study, the business will identify its strengths weaknesses and opportunities It is a recommendation that a separate consumer survey is conducted after this report. Before engaging a new market segment as has been recommended, a consumer survey should be done
Target Market
The current target segment is currently not enough to sustain the business. Having gained experience working with the corporate Market, the management is advised to venture into another target (Bozkurt, Keser and Zülfikar, 2020) . In this case, the professional and sole proprietor market to diversify that the revenue sources. Depending wholly on cooperate sources is unreliable as exhibited in the March of March when there was no revenue generated
Pricing
The current pricing regime isn’t too high or too low. It is recommended that the business explores other measures of revamping the business as opposed to increasing the prices
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.
Social Media Presence
The company has shown no indication it has a social media presence. Social media is an excellent platform to advertise and interact with its consumers. It is recommended that there be a well-trained individual to manage the company’s online account. The pages should be updated regularly for content, lead generation and customer care issues
Selling Channels
A selling channel is simply the means which a marketer uses to sell to its customers. In this report, it was established that there were no third-party vendors, distributors or retailers. This reports strongly advise the management to explore avenues to include them in its distribution chain. They could consider a commission structure. This will maximize their contacts in terms of sales generation and availability of the product to a wide range of customers. E-commerce is the futuristic way of doing business. The company has been spending a lot on advertising in the leading newspapers (Delli Priscoli, 2010). The number of leads generated from the form of marketing needs to be tracked as well. Newspaper readership is on a decline. Perhaps one newspaper is enough and the other amount channeled in online advertisement campaigns
Product Design
The product, design and quality did not seem like they have any issue. However, there were no indications of any new products in the pipeline. Bearing in mind the product life cycle, the company is advised to establish a research and development unit that will continually explore new and innovative products (Chiu, 2017) . The world is continually moving towards Artificial intelligence, this is some of the areas open for exploration
Audit Process
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
Trading Report at the End of the Year
Income Statement
| item | July | august | September | October | November | December | cumulative |
| Sales | 11660 | 17400 | 23188 | 26350 | 3160 | 36890 | 118648 |
| = other income | |||||||
| Total income | 11660 | 19400 | 24188 | 28350 | 33160 | 38890 | 147108 |
| Cost of sales | 8096 | 12144 | 16192 | 18400 | 22080 | 25760 | 102672 |
| 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 | 64 | 351 | 986 | 1885 | 2260 | 3255 | 8801 |
| cumulative | 964 | 1315 | 2301 | 4186 | 6446 | 9701 | 24913 |
The turnaround has been successful with the sales figures improving after-sales targets were raised. Most of the fixed costs remained constant. The business can now insure itself, engage in more market studies, and better train its staff. Also, the business has a sales and distribution channel ensuring that the products are readily available to the market. We also recommend that the business consider diversifying its source of revenues by exploring other sources of income. Additionally, the recovery plan is mainly centred on robust sales and marketing. It is for this reason that we recommend expansion into new markets other than the traditional geographical market. It is also recommended that significant investment be made in the sales and marketing department. There will need to invest in new blood to bring fresh ideas to the sales and marketing team. Lastly, during the formulation of the consultancy report, it was noted too that the market is large. The company had majorly concentrated on the corporate clientele. The company should consider ways and means of exploring the entire market. To maximize on its experience, the company should consider having a subsidiary for two reasons. It has established itself as a corporate brand and that remains very vital. A subsidiary will enable it to enter the mass market while entering the mass market.
References
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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 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.
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Thibierge, C., & Beresford, A. (2015). A practical guide to corporate finance: Breaking the financial ice. Houndmills, Basingstoke, Hampshire; New York, NY: Palgrave Macmillan
