Business decisions are very crucial for the growth and development of any business in a competitive environment. Making business-based decisions integrates numerous factors which must be considered for the business to operate not only smoothly and profitably, but also to place itself in the leader’s position in the competition ladder. The array of factors that must be incorporated in the decision-making process makes the entire process a very difficult and tedious task. Basically, the decision-making of an organization entails the consideration of both internal and external factors of the organization. 0ne of the guiding methods which are commonly used in making decisions of business organizations is based on financial plan and analysis (Anthony and Breitner, 2002, 189).
Analysis of Guillermo business situation
It is evident that Guillermo furniture store is operating at a critical financial crisis that has been generated by a certain transition in the furniture business sector. This financial crisis is a result of the rising cost of operation while the sales returns are drastically squeezed. The scarcity of labor force due to job influxes in the region has led to the demand for higher wages/ salaries, hence increasing the labor costs. In addition to this, the operation and management of the Guillermo furniture store have been threatened by the new competitor that has ventured into the region. The new competitor has taken advantage of modern technology by adopting large-scale production with fewer employees to reduce the operation cost. Despite the fact that Guillermo furniture stores are the pioneers of the furniture market in the region, the new competitor in penetrating the market with great ease by using modern technology to make equally quality products at reasonably lower prices compared to the premium prices of Guillermo. It has therefore taken the market shares of the newly upcoming retail traders, airport market and the establishing homes in the area as the Guillermo managers gets stranded on the way forward (Burgstahler et al 2008).
Guillermo business management
The existing circumstance in the furniture business is a big challenge that threatens the future business operations for Guillermo. Generally, the future of the Guillermo’s furniture store depends on several changes that must be taken to mitigate the business operations and management. First, Guillermo, as the manager of the business, has to change his poor management strategies that integrate personal goals with business goals. Thus, he should consider time as a factor of production and allocate adequate time for the business planning. According to the revealed data and information, Guillermo business planning would help him make a choice(s) of the major opportunities and strengths of the business to act as the revival and propulsion force(s) of the business in the future. This includes making decisions on investing in the business through acquisition of modern high-tech machines that increase production while reducing production costs. Additionally, the collapse of the business is triggered by the use of traditional management strategy resulting in increased overhead costs. He has been challenged on deciding to adopt the computerized technique in his management. Merger or acquisition has been a viable alternative for many other businesses; this could be a suitable solution for his business. Moreover, profitable and competitive operations of Guillermo furniture store could also be achieved through the development of higher quality products that would distinguish his business from that of his competitor. The development of new products from the competitor’s is a fundamental consideration since Guilermo has already patented the production process. Although the above strategies are potential forces for the improvement of business performance in terms of cost reduction and profitability increase, the choice to adopt any of the above depends largely on financial factors. This implies that Guillermo’s decision ought to be entrenched in his understanding of the present financial status and the expected return and return rates (Horngren, 2006, 48-49).
Guillermo controls measures
The previous centralized decision making strategy that have elements of self-centered goals has misled the organization in achieving the business goals. It has not only adopted management and operation modes which are ineffective in the generation of profits and reduction of costs, but it has also employed inefficient control systems in the business. Consequently, they got more concerned with net operating capital (income/ capital invested) while paying less attention to investments that generate the income. The change in Guillermo’s business performance began with the use of redundant control methods which neglected the application of strong tools in the determination and analysis of the business performance. The high level of depreciated machines and business premises beyond repair were clear indicators that management ignored the significance of using the rate of return on investment in their control toolbox. The manager should therefore be equipped with the relevant information on the rate of return in the investment by dividing the revenue with capital investment (Burgstahler et al, 2008).
The manager’s decision to invest in the new line of production is intriguing in the faced of management. However, as the pioneer of the new retardant product, a very viable business, he should consider taking advantage of monopolized environment. Despite the monopolized environment, the business still faces numerous challenges. Though the business circumvents the stiff direct competition environment from its competitors, it cannot evade from incurring rising labor costs and other production costs. Similar to the investment in the modern technology, the initial investment in the new product line requires a large amount of capital investment. However, the most important factor in both cases is the time it would take the business to reach its break-even point. This is a significant control measure because it shows the business is not only operating profitably but it also indicates the rate of return of the initial capital investment (Horngren, 2006, 387).
The understanding of the reduction of business costs while increasing the profitability of the business is a paramount determining factor of business success. The analysis of the financial status of a business help managers make sound decisions that enhance the business’ overall performance.
Anthony, R. and Breitner, K. (2002): Essentials of Accounting: Prentice Hall.
Horngren, C. (2006) Introduction to Financial Accounting: NJ: Prentice Hall.
Horngren, T., Sundem, L., Stratton, O., Burgstahler, D. and Schatzberg, J. (2008). Introduction to Management Accounting: New Jersey, Prentice Hall.