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Managing Growth Simulation
FIN/571
Managing Growth Simulation
Introduction
The complete course has reveled us the great idea to influence our
trends and intelligence while analyzing the entire details of Sunflower
Nutraceuticals (SNC) company followed with all the decisions of the company
which tends to increase their working capital and maximizing the overall
organizational growth potentially with respect to time, as we have figured out
the data and change in numbers below which reflects the growth annually.
Moreover in addition to various details of the SNC firm we have also examined
various decisions which took place in each of the phase of SNC’s simulation
which has an estimated values to figure out the results, secondly the paper
also describes how SNC’s decisions are influenced with respect to their working
capital followed with the final step of evaluating the general affects
associated with the limited access of financial mix.
Sunflower
Nutraceuticals (SNC) Background
No
wonder SNC is a privately owned Nutraceuticals company , more over one can say
it is a wide distributor which provides all the vital dietary supplements such
as herbs for women’s, vitamins, and minerals for all the consumers (mainly
women’s), distributors and retailers. (Harvard Business School Publishing,
2012). Once the business was initiated after 2006, SNC expanded their
operations and came up with various retail outlets in the nutraceutical
industry and moreover has been successful while introducing their own brands of
sports drinks, vitamins for teenagers, metabolism- boosting powders, etc and
various other products from a same product line which enable to enhance the
metabolism system of humans.
Although
being potential to grow as one of the major nutraceutical distributors in the,
they are still struggling to break even and one more than one occasion have
been forced to exceed the company’s credit line ($1,00,000) to finance their
payroll and other operational needs. Because of their somewhat restrictive
financing options, they are only able to use a small percentage (approx. 10%)
to evaluate and invest in new business expansion which resembles great opportunities
in other retail markets across the globe.
Phase
1 of SNC’s Simulation (Years 2013-2015)
During the initial phase of the simulation, they presented four major
opportunities which could be helpful for their company to maximize their growth,
those opportunities includes-
Discontinuing their Poorer Selling
Nutraceutical Products –since they have more than 100 products, some of those products
can be dropped off SNC’s inventory because they are outdated. Reducing or
discounting those items will allow SNC to a) reduce its DSI to approximately 3
months, b) cut its EBIT by 50k approximately, c) drop sales to 1mm, and d) create
more inventory space for the popular products. Doing this will rationalize the
SNC’s SKU count. Leveraging their Supplier Discount –SNC is considering an offer to add
Atlantic Wellness (a large successful food chain) to their nutraceutical
product line. The company considered and accepted the Atlantic Wellness
contract as it allows them to increase company sales almost doubled for 2mm. In
addition to their contract offer with Atlantic Wellness, SNC also considered the
acceptance of Ayurveda Naturals with the contract offer which was favorable to
SNC as it payment terms reflected a net gain of approximately 50. They could have
lower its AP if it was related to pay of
Ayurveda Naturals within a month and that payment can rise a discount of almost
2% on some of their raw materials. Acquiring a New Client – SNC acquired a new client by acquiring
the services of health food giant Atlantic Wellness to their nutraceutical
products line. This decision increased SNC’s EBIT by approximately 200,000 and thus
their sales figures by 4mm. Although SNC’s sales and EBIT figures increased,
their net working capital and profit margins will remain at current figures. Additionally,
acquiring Atlantic Wellness as a client will help increase SNC’s sales
significantly, but those increase sales does not come without a cost as the
increase sales will come at the sacrifice of inventory and accounts receivable.
Sacrificing inventory and accounts receivable is not a good deal for SNC
because of their current cash position as SNC must keep a minimum of $3 lakh on
hand to meet their company’s operational needs. However, there is a positive
lining for SNC as the risk of inventory and accounts receivable could be
balanced by negotiating a profitable deal with merchant Ayurveda
Natural.
Limiting their Receivable Accounts – Since Super Sports Centers account for
20% of SNC’s sales figures, those receivable accounts takes the company
approximately 200 days to pay and those 200 days is well above the normal
90-day average. To resolve this issue, SNC could drop Super Sports Centers and
improve their DSO number, but that come at a cost as SNC’s sales would drop
$2mm. Phase 2 of SNC’s Simulation (Years
2016-2018)
During phase two of the simulation,
SNC was presented with three different opportunities and those opportunities
include:
Expansion of SNC’s
Online Presence –Since SNC would like to
expand their operations into new retail markets its company was presented with
an opportunity to partner with Golden Years Nutracueticals so that they could
reach a larger, more diverse consumer base.From 2016-2018, this partnership
reduced SNC’s DSO figures because its web sales began to be collected more
rapidly from few days almost 7 to 2 days throughout the duration of 2016-2018.
Also SNC also saw about 10%, increase in their sales from 2016-2018. This was
an ideal opportunity for SNC as it will allow them to increase their sales with
having little-to-no effect on the company’s working capital.Take up Big-Box
Contributions – SNC established a
partnership with sales giant Mega-Mart, and that decision allowed SNC to see
increase in sales of 25%, 10%, and 5% approximately during 2016-2018.
Additionally, this decision dropped SNC’s from about 1%, however, their bills
were paidon time causing SNC’s DSO to drop. Beginning with a partnership with
Mega-Mart is a good idea. However, this partnership will drop margins and
reduce SNC’s EBIT.Create a Private Label
Product –SNC has a partnership with
Fountain of Youth Spas, and Fountain of Youth Spas want SNC to develop their
own private label product so that SNC can expand their nutraceutical products
line and increase their sales and consumer base. Doing this would increase
SNC’s 2016-2018 sales by 5%, 4%, and 3% approximately. Additionally, it will
also increase margin by 2% while increasing SNC’s DSO’s and DSI. This
partnership will allow SNC to increase their EBIT while slightly raising their
accounts receivable figures.Phase 3 of SNC’s
Simulation (Years 2019-2021)
During phase
three of SNC’s simulation, there were three opportunities for SNC to consider,
and those opportunities include:
Adapt a Global Expansion Plan–SNC
acquired a new Latin America client (Viva
Familia), which helped SNC expand their business operations into Latin
America. SNC’s partnership with Viva Familia allowed SNC to decrease their DSO
for a couple of days because Viva Familia will cover delivery charges. However,
this new partnership increased the company’s DSI by two days, and it also
increased SNC’s sales by 2% with margins remaining parallel to current
business.Renegotiate Current Supplier Credit Terms – SNC
want to renegotiate its credit terms with other vendors so they used their main
vendor Dynasty Enterprises (located in
China) as leverage (suppose SNC needed a 3% discount for
payment in 10 days) with other vendors. SNC could use their negotiation
tactics with other vendors because their main vendor, Dynasty Enterprise
offered SNC profitable terms of 2/10 with a net of 30. This reduces SNC’s costs
of sales by 200k and their AR by 800k. Acquire a High-Risk Client –Midwest
Miracles is a potential high-risk client for SNC because of Midwest Miracles
excessive debt and risky financial situation. However, acquiring this client
will increase the sales of future prospects of SNC sales by approximately 30%
in 2019. Midwest Miracles is a potential
risk for SNC as their company has lesser chance of going bankrupt as compared
with the recovery. Other effects of this client, includes a likely increase in
DSO by 190 days, and higher fees with a longer than average invoice pay-period.SNC’s Final Metrics
Results
Final Metrics Results (Figures Reflect
2013-2021) Estimated values:
EBIT (202% Increase):
Figure went from $440 to $1,330, Sales (27% Increase):
Figure went from $10k to $12,672Net Income (412% Increase):
Figure went from $156 to $798Free Cash Flow (124% Increase): Figure went from $365 to $798Total Firm Value (56% Increase): Figure went from $3,248 to $5,082General Effects of
Limited Access to Financing
There are several
general effects that limited access to financing can have several effects on
entrepreneurs trying to start or grow his or her businesses. For example,
limited access to financing can lead to 1) higher interest rates on a business
loans or credit fees. 2) Force a business to face a complicated and expensive
entry (registration costs, policies, equipment fees, etc.) and exit
procedures(Parrino, Kidwell, & Bates, 2012). C) Limit the amount of growth
(profits, SME, consumer/client base, etc.) a company can have in that new
market. D) Make it more challenging (longer and more expensive process) to
implement property and intellectual rights of privately owned and developed
brand products.
Conclusion
Finally while
concluding the entire paper would like to say that SNC simulation reflected us
the challenging ways of handling the managing growth and capital of an
organization in our present scenario. Especially it is found in the business
market where we can find a company with limited financial power or take on
business partnerships because they cannot support financially with their credit
line or resources as they are more than their estimated budgets. Hence you must
say that really managing a company while handling all the competitors in the
market is really a difficult task to be performed in a best possible way along
with the acceptance of all the updated trends in our community.
References
Harvard Business
Publishing. (2012). Working capital simulation: managing growth. Retrieved
October 28, 2013 from, http://forio.com/simulate/harvard/working-capital/simulation/?#page=dashboard.
Parrino, R., Kidwell, D. S, & Bates, T. W.
(2012). Fundamentals of corporate finance
(2nd ed). Hoboken, NJ: Wiley. Retrieved October 28,
2013 from, FIN/571 Foundations of Corporate Finance student website at the
University of Phoenix (UOPX).
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