Studio Stessia is a form of partnership that is owned by Paul and Nicole. This partnership operates various businesses under one roof. Some of the business activities that take place in the partnership include sale of women’s clothes and salon. This partnership is located in the outskirts of Quebec City. This business is a family business since it was inherited from the grandmother of one of the partners. The two partners are people with other responsibilities in the society and therefore have little time to manage the business. As a result, the partners have employees who manage the business on their behalf. However, the partners spare their time to find out how the activities of the business are fairing.
Since the business is large, there are several workers employed in the business to help run the activities of the business. The business has two departments and each has its own manager. In addition, Paul is in charge of one department while Nicole manages the other department.
The two partners have been operating the business for a long time together. It can be observed that the income of the business has been fluctuating from year to year. However, the general performance of the business has been good. There exists difference in the personalities of the two partners that sometimes causes management problems. Nicole ensures that her department keeps all the necessary business records. In addition, she ensures that all the receivables are demanded in time to ensure that there is enough cash to run the activities of the business.
On the other hand, Paul does not keep proper business records such as sales record. In addition, he does not usually collect the receivables from the creditors until when the cash is urgently needed. This is very dangerous to the business since lack of can limit the activities of the business. The fact that the behavior is dangerous to the business can be witnessed due to the fact that the manager under Paul’s department has faced cash shortages once and Paul only acted after he was informed that there was cash shortage in the department.
The business performance of the partnership g has been excellent. This is because of the customer loyalty that the business has enjoyed for a long time. The business offers variety and high quality services to the customers and this is the basis for the good performance of the business. In addition, the marketing strategy of the partnership has played a big role in the success of the business.
The company keeps a record of the customers it serves and their needs. This ensures that they are able to meet the needs of the customers the best possible. In addition, the show exhibitions had done by the business play a big role in attracting and retaining the customers. Through the exhibitions, the business is able to identify the needs of the customers and hence retain them.
The major challenge that is faced by the partnership business is the fluctuation in the sales of the business. This is mainly because of the fact that the goods and services that are sold by the business are seasonal in nature. Sometimes the demand is high and other times the demand is very low. For example, clothes and salon services are usually highly demanded when there are celebrations. For example, during Christmas, these goods and services are highly demanded. However, during other times of the year, the demand is usually very low and sometimes the sales are very low leading to very low profits.
The partnership is aware of the fact that maximizing sales during the peak season are very essential for their success. This is why the partnership is considering increasing the space coverage of the business so that a larger volume of goods can be stocked. In addition, this can facilitate service provision of a larger number of the customers.
However, the main challenge that the business is facing is on how to raise the money to expand its entity. The business currently requires additional funds so that it is able to expand its space. However, there is a possibility that the business is not given an additional loan due to the circumstances that it is facing. It can be observed that there is always a fluctuation of sales in each season. This shows to the banks that in some times, the business will not be able to pay the amount due. There are various other issues that facilitate the inability to pay the amount due to the bank in time. These problems are explained as follows.
The business has the problem of inability to forecast its sales correctly. What this means is that sometimes the business stocks large volumes of products with the hope that it will make a large percentage of sales. Sometimes, the actual sales are very low as compared to the achieved sales. As a result, a large stock of goods is lefts in the stores. The implication of this is that there is a shortage of cash to meet the daily expenses of the firm. This pressurizes the business to offer large amounts of discounts to its customers as a way of eliminating the huge stocks of the goods. What this means is that the business incurs a loss due to this activity. Losses means that the business is not able to meet its intended obligations and it cannot also afford to expand its activities. Competition is another problem that is faced by the business. There are many firms in the market that are offering similar products as the ones that are offered by the partnership.
This means that the business has to put in place measures that will ensure that it captures a large proportion of the customers. As a results, the costs of marketing increases. The firm is forced to sell at lower prices hence low profits. In addition, production of goods of high quality is necessitated and this leads to high costs of production. However, the returns of from the business are not very attractive.
The partnership also lacks experts who are responsible for keeping proper business records. As a result, the business is losing a lot of funds in terms of unpaid products. In addition, the amounts received by the business as payments from debtors are less than the amounts that the business pays to its debtors. This is dangerous in that the business will not be able to meet its future obligations when they fall due.
Closely investigating the business, it can be seen that the business will not be able to convince the lenders to lend funds to them if the business does not keep proper books of accounts. An incomplete book of accounting means that the lender will not have all the required information to evaluate the reliability of the business. In addition, incomplete books of accounting mean that cash is likely to be misappropriated by the employees and the management. This is because there will be no accountability in this case.
As it has been stated, the main problem that the business is facing currently is lack of funds to expand its business premises. This problem is difficult to handle because of the conditions that the e business faces. First, the business experiences a huge fluctuation of profits each year. Form the financial statements of the business, the income of the business dropped from 25074 dollars in the year 2000 to – 9853 in the year 2001. In 2002, the profits rose again to 40453 dollars. This shows that the profits of the business are unpredictable. Therefore the banks and other financial institutions may not be willing to extend credit to the business in fear that the demand for the firms’ products may fall to a very low level leading to a situation whereby the business is not able to pay the loan that it borrowed.
Currently, it can be observed that the business has many debts that it is servicing. The amount that the business is borrowing is an addition to another loan. Therefore, there is a great risk in that if the expectations of the business are not witnessed, there may arise payment problems in relation to the loans. It has normally been observed that sometimes the predicted sales of the business are more than the actual sales. If this happens, the business will not be in a position to meet its obligations. In addition, there is a probability that the bank will not accept to extend credit to the business due to the fact that already, the business has a large debt with the bank.
The retained earnings of the business in the year 2002 is 49601 dollars. This amount is very small as compared to the amount that the business needs for its expansion purposes. The business is requesting of an increase in its working capital loan by 35 000 dollars meaning that the full loans is far much larger than this amount. This means that if the bank fails to finance the business, the expansion activities of the business premises will not be possible. This means that the objectives of the business will not be met.
The financial statements of the business usually keep on fluctuating. This is mainly because the partners withdraw part of their capital for their own use. For example, the total assets of the business reduced from 138652 dollars in the year 2000 to 124335 dollars in the year 2001. This means that the securities to be offered when the loans are granted are not very reliable. Therefore if the lender learns this situation, they will not be willing to lend the loan to the business due to the fact that the loans will not be fully secured.
Interest coverage by the business is very low. In addition, there was no interest coverage in the year 2001. What this means that there are no funds set aside to meet the interest expenses of the business. Therefore the business will face difficulties in the payment of the interest of the loan borrowed. The payment of the principle will also be another challenge. Therefore the financial institutions will not be willing to give a loan to the business.
The business should put in place various measures to prevent the problems that it is facing in future. One of the measures that the business should ensure is proper keeping of business records. This is important in ensuring that all the cash of the business can be accounted for. Misuse of funds can be avoided through proper book keeping. In addition, the business will be able to collect all its debts to avoid loss of cash. Proper book keeping ensures that helps the management to be aware of its liquidity position. This will facilitates proper management decisions that will ensure that the business will not face financial problems in future.
The business should also develop proper methods of forecasting its sales. This will help to avoid overstocking of goods. This overstocking of goods has led to losses to the business through the discounts that are implemented. This has led to financial problems of the company. To avoid such problems in future, the business should come up with more accurate methods of forecasting its sales. This will help to reduce losses to the business hence financial security.
The business should also develop proper marketing strategies. The partnership can use media such as radio and television that is cheaper and reaches more people. By reaching more customers’, the business is likely to experience huge sales. Increase in sales is likely to lead to increased profits of the business. Reliable profits of the business will ensure good financial stability of the business and therefore the business will never face financial problems it is facing currently.
The competition that the business is facing in market can be avoided through better goods and services of the customers. The business should ensure that goods and services provided to the customers are of high quality. The business should also in place measures to ensure that their customers are satisfied with the products and services of the business. This will create loyalty of the customers to the business and this will lead to steady sale of the products of the firm. In addition, the business should develop a variety of goods and services to ensure that the various needs of the customers are satisfied.
The business should also diversify its risks by investing in various types of products. This will ensure that when one product is not doing well in the market, the business benefits from the other products hence the daily needs of the business can be met. The current situation whereby the firm deals with goods and services whose demand is seasonal is a risky situation because it is likely that the business is likely to face financial problems when the season is not favorable.
The business can also diversify its risks by expanding its branches to other parts of the country. This will be a means of reaching more customers. This is likely to increase the sales of the business and hence its profitability. In addition, when the demand for goods in one region is low, the products can be moved to the fast moving branch. This ensures that the sales of the business remain constant and hence the financial situation of the business will be sound. The current expansion of the business may not be beneficial if the demand for the goods does not change. Therefore getting a loan to expand the current business is risky and it can cause more problems to the business.
It is not worthy to expand the business currently given the situations surrounding the business. The business should first enhance its financial soundness by following the recommendations given above before considering expanding its size. The implementation of the recommendations may require appropriate managerial skills. Therefore the owners of the business should consider employing qualified individuals to manage their business on their behalf since they lack the management skills to run the business.