{"id":87190,"date":"2022-08-12T22:56:51","date_gmt":"2022-08-12T22:56:51","guid":{"rendered":"https:\/\/assignmenttutors.net\/blog\/cash-flow-bba-heriot-watt\/"},"modified":"2022-08-12T22:56:51","modified_gmt":"2022-08-12T22:56:51","slug":"cash-flow-bba-heriot-watt","status":"publish","type":"post","link":"https:\/\/assignmenttutors.net\/blog\/cash-flow-bba-heriot-watt\/","title":{"rendered":"Cash flow | BBA | heriot watt"},"content":{"rendered":"<div>\n<p>Aggro Stores is a 30 year old cooperative (not for profit) business based in a remote island community of less than 10,000 residents. The original purpose of the business was \u00a0to \u00a0supply \u00a0agricultural \u00a0products \u00a0such \u00a0as \u00a0animal \u00a0feed \u00a0and \u00a0farm \u00a0equipment \u00a0to \u00a0the mainly \u00a0rural \u00a0population \u00a0of \u00a0the \u00a0island, \u00a0which \u00a0collectively \u00a0set \u00a0the \u00a0business \u00a0up \u00a0for \u00a0that purpose. \u00a0The \u00a0business \u00a0is \u00a0run \u00a0by \u00a0a \u00a0general \u00a0manager \u00a0who \u00a0has \u00a0a \u00a0small \u00a0staff \u00a0of \u00a0five people to support the operations; mainly by taking calls, maintaining and organising stocks, \u00a0serving \u00a0the \u00a0customers \u00a0and \u00a0keeping \u00a0the \u00a0accounts. \u00a0Recently \u00a0a \u00a0new \u00a0manager has been appointed after the dismissal of the old manager for undisclosed reasons. The manager reports to the board of the cooperative, but has reasonable autonomy in the way that he wishes to run the business. On taking up the appointment the new manager is dismayed to find that the business is \u00a0not, \u00a0as \u00a0he \u00a0had \u00a0been \u00a0told, \u00a0stable \u00a0and \u00a0profitable, \u00a0but \u00a0is \u00a0in \u00a0fact \u00a0in \u00a0a \u00a0poor \u00a0state \u00a0after years of underinvestment and neglect. Within a few weeks he has identified that the store carries a very limited range of stock and that stock levels of those lines that are carried \u00a0are \u00a0low. \u00a0In \u00a0addition, \u00a0some \u00a0lines \u00a0of \u00a0stock \u00a0are \u00a0aging \u00a0and \u00a0close \u00a0to \u00a0obsolete. Customer footfall is also low as there is not much to buy in the store apart from the agricultural supplies. There \u00a0is \u00a0significant \u00a0competition \u00a0on \u00a0the \u00a0island \u00a0from \u00a0a \u00a0road \u00a0haulage \u00a0contractor \u00a0who brings in supplies of animal feed on the trucks that would otherwise be empty when they return to the island after shipping out the crops and animals that are the island\u2019s main \u00a0outputs. \u00a0Further \u00a0competition \u00a0comes \u00a0from \u00a0a \u00a0larger \u00a0haulage \u00a0company \u00a0on \u00a0a neighbouring island, which is also bringing animal feed back in its empty trucks. The \u00a0animals \u00a0(mainly \u00a0sheep) \u00a0that \u00a0leave \u00a0the \u00a0island \u00a0are \u00a0intended \u00a0for \u00a0meat \u00a0markets \u00a0on the \u00a0mainland. \u00a0Most \u00a0of \u00a0the \u00a0farmers \u00a0on \u00a0the \u00a0island \u00a0are \u00a0part \u00a0of \u00a0a \u00a0quality \u00a0assured \u00a0meat scheme \u00a0that \u00a0increases \u00a0the \u00a0value \u00a0of \u00a0their \u00a0animals. \u00a0As \u00a0part \u00a0of \u00a0the \u00a0scheme \u00a0they \u00a0are required \u00a0to \u00a0buy \u00a0their \u00a0animal \u00a0feed \u00a0from \u00a0a \u00a0supplier \u00a0that \u00a0is \u00a0also \u00a0part \u00a0of \u00a0the \u00a0quality assurance scheme, to ensure that the feed is being of a good standard and is being kept \u00a0in \u00a0a \u00a0safe \u00a0manner. \u00a0The \u00a0facilities \u00a0to \u00a0keep \u00a0the \u00a0feed \u00a0in \u00a0this \u00a0manner \u00a0are \u00a0costly \u00a0and lead to the feed being more expensive than that supplied by the haulage contractors. The \u00a0manager \u00a0is \u00a0aware \u00a0that \u00a0many \u00a0of \u00a0the \u00a0farmers \u00a0are \u00a0buying \u00a0their \u00a0feed \u00a0from \u00a0the haulage \u00a0contractors, \u00a0despite \u00a0that \u00a0being \u00a0in \u00a0breach \u00a0of \u00a0the \u00a0terms \u00a0of \u00a0the \u00a0quality assurance scheme. The \u00a0store \u00a0buildings \u00a0are \u00a0large, \u00a0but \u00a0underutilised \u00a0and \u00a0in \u00a0poor \u00a0repair. \u00a0Purpose \u00a0built when \u00a0the \u00a0store \u00a0opened \u00a030 \u00a0years \u00a0ago, \u00a0they \u00a0are \u00a0suffering \u00a0from \u00a0rot \u00a0in \u00a0the \u00a0roof, \u00a0the drainage is no longer up to standard and the car park is full of holes and is constantly full \u00a0of \u00a0mud \u00a0from \u00a0the \u00a0high \u00a0rainfall \u00a0in \u00a0the \u00a0region. \u00a0The \u00a0manager \u00a0has \u00a0identified \u00a0that \u00a0the roof \u00a0is \u00a0unsafe \u00a0in \u00a0places \u00a0and \u00a0that \u00a0the \u00a0drainage \u00a0is \u00a0on \u00a0breach \u00a0of \u00a0local \u00a0environmental regulations. \u00a0In \u00a0addition, \u00a0the \u00a0interior \u00a0decoration \u00a0of \u00a0the \u00a0store \u00a0is \u00a0very \u00a0poor \u00a0and \u00a0it \u00a0is \u00a0an unpleasant place both to work in and to visit.\u00a0<\/p>\n<p>The \u00a0store \u00a0turned \u00a0over \u00a0\u00a3480,000 \u00a0in \u00a02018, \u00a0but \u00a0cost \u00a0of \u00a0goods \u00a0sold \u00a0was \u00a0\u00a3360,000 \u00a0and staff and other operating costs were \u00a3140,000. The only good news is that it appears that while the previous manager had run down the stock, he had increased the cash at the bank and there is a positive balance of \u00a3136,000 in the store\u2019s bank account. Only \u00a0\u00a310,000 \u00a0is \u00a0due \u00a0to \u00a0suppliers \u00a0who \u00a0provide \u00a0the \u00a0feed \u00a0and \u00a0agricultural \u00a0supplies \u00a0on 30 \u00a0days \u00a0credit \u00a0terms. \u00a0Customers \u00a0of \u00a0Aggro \u00a0also \u00a0receive \u00a030 \u00a0days \u00a0credit \u00a0and \u00a0the debtors balance is currently \u00a380,000. The manager meets with the Chairman of the Board and discusses the following: Stocks and margins: The \u00a0manager \u00a0observes \u00a0that \u00a0stocks \u00a0have \u00a0been \u00a0run \u00a0down \u00a0and \u00a0that \u00a0the \u00a0store \u00a0cannot sell \u00a0what \u00a0it \u00a0does \u00a0not \u00a0have. \u00a0Additionally, \u00a0the \u00a0lack \u00a0of \u00a0stock \u00a0is \u00a0reducing \u00a0customer interest in the store and leading to less footfall in the premises. Further, the focus on agricultural \u00a0products, \u00a0particularly \u00a0animal \u00a0feed \u00a0has \u00a0led \u00a0to \u00a0very \u00a0low \u00a0margins \u00a0as \u00a0the market \u00a0for \u00a0these \u00a0products \u00a0is \u00a0very \u00a0competitive \u00a0and \u00a0particularly \u00a0so \u00a0with \u00a0the \u00a0haulage contractors \u00a0undercutting \u00a0them \u00a0on \u00a0the \u00a0feed. \u00a0The \u00a0manager \u00a0would \u00a0like \u00a0to \u00a0introduce \u00a0a wider \u00a0range \u00a0of \u00a0stock \u00a0lines, \u00a0such \u00a0as \u00a0hardware \u00a0and \u00a0other \u00a0goods, \u00a0which \u00a0have \u00a0much higher margins. The manager calculates that the animal feed has an average margin of 10 %, with the other agricultural products having an average margin of 35%. The current \u00a0product \u00a0mix \u00a0is \u00a040 % \u00a0animal \u00a0feed \u00a0and \u00a060 % \u00a0other \u00a0agricultural \u00a0products. \u00a0The manager argues that the goods he would like to introduce carry margins of 60-100% with an average of 80 % envisaged. He estimates that any such stock introduced will turnover \u00a0every \u00a0six \u00a0months, but accepts \u00a0that \u00a0there \u00a0is uncertainty as they \u00a0have \u00a0never sold this type of thing before, so he suggests that there is a 20 % chance that stocks might turn over every four months and a 30 % chance that they might only turn over every 12 months. The \u00a0Chairman \u00a0acknowledges \u00a0the \u00a0problem \u00a0and \u00a0concedes \u00a0that \u00a0there \u00a0is \u00a0a \u00a0market \u00a0for other \u00a0products \u00a0as \u00a0the \u00a0islanders \u00a0currently \u00a0have \u00a0to \u00a0order \u00a0many \u00a0things \u00a0on \u00a0the \u00a0internet and wait for their delivery by sea. This is expensive as mainland companies always charge \u00a0a \u00a0premium \u00a0for \u00a0delivery \u00a0to \u00a0the \u00a0islands. \u00a0Nevertheless, \u00a0he \u00a0is \u00a0unsure \u00a0of diversifying \u00a0in \u00a0this \u00a0way. \u00a0He \u00a0has \u00a0been \u00a0chairing \u00a0the \u00a0board \u00a0for \u00a0the \u00a0last \u00a015 \u00a0years \u00a0and feels \u00a0strongly \u00a0that \u00a0there \u00a0is \u00a0a \u00a0need \u00a0to \u00a0ensure \u00a0a \u00a0retention \u00a0of \u00a0focus \u00a0on \u00a0the \u00a0agricultural side as that was the original purpose of the business. He also argues that to bring in these \u00a0new \u00a0lines \u00a0would \u00a0require \u00a0the \u00a0purchase \u00a0of \u00a0a \u00a0lot \u00a0of \u00a0new \u00a0stock, \u00a0which \u00a0would \u00a0be very expensive. Also, the store in its current configuration does not have the display racking for new lines and display racking is also very expensive. On \u00a0this \u00a0last \u00a0point \u00a0the \u00a0manger \u00a0observes \u00a0that \u00a0the \u00a0large \u00a0food \u00a0store \u00a0on \u00a0the \u00a0island \u00a0is currently being upgraded and he has spoken to its manager about their old racks. He has \u00a0got an \u00a0assurance \u00a0that he can have \u00a0as much \u00a0of the racking as \u00a0he wants as the food \u00a0store \u00a0would \u00a0otherwise \u00a0have \u00a0to \u00a0pay \u00a0for \u00a0its \u00a0disposal. \u00a0Using \u00a0staff \u00a0from \u00a0Aggro Stores, \u00a0supported \u00a0by \u00a0casual \u00a0workers \u00a0to \u00a0collect \u00a0and \u00a0assemble \u00a0the \u00a0racking \u00a0could \u00a0be done \u00a0for \u00a0about \u00a0\u00a33,000, \u00a0he \u00a0argues. \u00a0This \u00a0would \u00a0allow \u00a0for \u00a0up \u00a0to \u00a0\u00a3160,000 \u00a0of \u00a0stock \u00a0(at cost) to be carried. He also argues that some redecoration is required to the area of the store that he plans to use, but that it can be done for another \u00a33,000. As soon as possible he would like to redecorate and refit the rest of the store at a further cost of \u00a310,000.\u00a0<\/p>\n<p>Buildings and infrastructure: Another issue the manager raises with the Chairman is the amount of shrinkage that they are suffering due to the poor state of the building. Because the roof is leaking in places, they often find that stocks of animal feed get wet and are spoiled. About 10% of the feed that is bought in is lost in this way and due to health regulations, the store is paying \u00a35,000\/year for the disposal of the spoiled feed. That \u00a35,000 and the cost of the spoiled feed are part of the cost of goods sold. As well as this problem the manager points out that the roof is dangerous in places and urgent action needs to be taken. Restoring the roof to a sound condition can be done \u00a0via \u00a0a \u00a0temporary \u00a0repair \u00a0for \u00a0\u00a315,000, \u00a0or \u00a0by \u00a0a \u00a0full \u00a0repair \u00a0for \u00a0\u00a335,000. \u00a0The temporary repair would be good for no more than three years at which point the full repair would have to be done. Alternatively, they could rent an empty building on the adjacent site. The lease for this building has become available and could be secured for \u00a0\u00a31,000\/month. \u00a0All \u00a0of \u00a0the \u00a0animal \u00a0feed \u00a0could \u00a0be \u00a0shifted \u00a0into \u00a0this \u00a0building, \u00a0which \u00a0is sound \u00a0and \u00a0dry. \u00a0Securing \u00a0the \u00a0lease \u00a0would \u00a0also \u00a0provide \u00a0additional \u00a0storage \u00a0and \u00a0yard space for agricultural building products that currently are not stocked. These carry a margin of 50 % and up to \u00a3100,000 of additional stock could be carried which would turn over every four months. As there is a history in the store of selling these type of products, \u00a0he \u00a0is \u00a0confident \u00a0of \u00a0the \u00a0figures. \u00a0He \u00a0is \u00a0not \u00a0confident \u00a0that \u00a0the \u00a0lease \u00a0of \u00a0the building will not be taken up by someone else if Aggro do not move on it soon. The manager then points out that the drainage problem is a health and safety issue, which threatens not only staff on site, but also their licenses to sell animal feed. The issue is serious, but can be remedied by the installation of a septic tank for \u00a35,000. He \u00a0is \u00a0aware \u00a0that \u00a0the \u00a0authorities \u00a0are \u00a0currently \u00a0unaware \u00a0of \u00a0the \u00a0problem, \u00a0but \u00a0is concerned \u00a0that \u00a0if \u00a0they \u00a0find \u00a0out \u00a0they \u00a0would \u00a0act \u00a0quickly \u00a0and \u00a0close \u00a0the \u00a0store. \u00a0He concedes that it is unlikely that they will find out within the next 6 months. Finally, \u00a0he \u00a0raises \u00a0the \u00a0issue \u00a0of \u00a0the \u00a0car \u00a0park. \u00a0He \u00a0argues \u00a0that \u00a0spreading \u00a0gravel \u00a0in \u00a0the car \u00a0park \u00a0will \u00a0stabilise \u00a0the \u00a0surface \u00a0and \u00a0make \u00a0it \u00a0much \u00a0more \u00a0pleasant \u00a0for \u00a0customers. This \u00a0will \u00a0cost \u00a0\u00a35,000, \u00a0but \u00a0will \u00a0be \u00a0good \u00a0for \u00a0five \u00a0years \u00a0and \u00a0he \u00a0estimates \u00a0will \u00a0increase footfall \u00a0in \u00a0the \u00a0store. \u00a0The \u00a0additional \u00a0footfall \u00a0will, \u00a0he \u00a0estimates, \u00a0increase \u00a0the \u00a0sales \u00a0of their \u00a0core \u00a0animal \u00a0feed \u00a0and \u00a0agricultural \u00a0supplies \u00a0(non-building) \u00a0by \u00a030 % \u00a0of \u00a0their current level for each of the next three years, so that in 3 years time, sales will have increased by 90 %. He believes that the redecoration and refitting of the part of the store that currently holds this core stock would increase footfall and sales by another 10 % each year from current levels. The Chairman is worried by this discussion. He can see that the manager has done a good job and has identified many problems and has offered solutions, but as they are \u00a0both \u00a0aware \u00a0the \u00a0store \u00a0does \u00a0not \u00a0have \u00a0the \u00a0money \u00a0to \u00a0make \u00a0all \u00a0the \u00a0improvements right \u00a0away \u00a0and \u00a0there \u00a0is \u00a0no \u00a0prospect \u00a0of \u00a0raising \u00a0finance \u00a0elsewhere. \u00a0The \u00a0manager wants \u00a0to \u00a0use \u00a0all \u00a0of \u00a0the \u00a0available \u00a0cash \u00a0to \u00a0progress \u00a0things \u00a0as \u00a0fast \u00a0as \u00a0possible. \u00a0The Chairman would prefer to progress more slowly as he worries about having no cash reserves. He also worries about the reaction of the rest of the board to this news.\u00a0<\/p>\n<p>The brief: 1. \u00a0In \u00a0groups \u00a0of \u00a05-6, \u00a0analyse \u00a0the \u00a0situation \u00a0at \u00a0Aggro \u00a0Stores, \u00a0considering \u00a0the competitive environment and financial constraints. Aspects of the problem are best shared out amongst the group. 2. \u00a0Consider \u00a0the likely \u00a0outcomes, \u00a0financial and otherwise, \u00a0of the \u00a0options that \u00a0the manager has offered and seek optimal outcomes. 3. \u00a0In \u00a0a \u00a0report \u00a0of \u00a0not \u00a0more \u00a0than \u00a04,000 \u00a0words \u00a0produce \u00a0a \u00a0five \u00a0year \u00a0plan \u00a0that \u00a0the manager and the Chairman can present to the Board as a way forward for the business that will ensure its future prosperity. You should include budgets and cash flow forecasts for the alternatives and show clearly (in appendices) how you have arrived at the numbers that you present. Clearly justify in the report the \u00a0choices \u00a0you \u00a0have \u00a0made, \u00a0discussing \u00a0in \u00a0particular \u00a0how \u00a0you \u00a0think \u00a0the customers and competitors will respond to the actions of Aggro. Remember, there is not \u00a0one \u00a0correct \u00a0way \u00a0forward \u00a0in \u00a0this \u00a0case. \u00a0There \u00a0are \u00a0a \u00a0range \u00a0of options \u00a0that \u00a0depend \u00a0on \u00a0the \u00a0quality \u00a0of \u00a0the \u00a0manager\u2019s \u00a0information \u00a0and \u00a0the \u00a0likely responses of the competition and the customer base. Credit will be given for creative solutions. You should not restrict yourself to the information that has been provided, but should reflect on other factors and opportunities as well.\u00a0<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Aggro Stores is a 30 year old cooperative (not for profit) business based in a remote island community of less than 10,000 residents. The original purpose of the business was \u00a0to \u00a0supply \u00a0agricultural \u00a0products \u00a0such \u00a0as \u00a0animal \u00a0feed \u00a0and \u00a0farm \u00a0equipment \u00a0to \u00a0the mainly \u00a0rural \u00a0population \u00a0of \u00a0the \u00a0island, \u00a0which \u00a0collectively \u00a0set \u00a0the \u00a0business \u00a0up [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":["post-87190","post","type-post","status-publish","format-standard","hentry","category-education"],"_links":{"self":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/87190","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/comments?post=87190"}],"version-history":[{"count":0,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/87190\/revisions"}],"wp:attachment":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/media?parent=87190"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/categories?post=87190"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/tags?post=87190"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}