Rosy E. Acuna
October 20, 2013
BUSINESS CASE # 2
Twin Peaks Building Supplies
The business environment has dramatically changed in the last two decades. Competition has severely intensified. The instant access to information via computers, smart phones, tablets, etc. allow consumers to compare prices and purchase merchandise from anywhere in the world. In addition, we have witnessed a considerable growth in retail chain companies such as Home Depot, Wal-Mart, Costco, etc. These big chains command the power and the volume to offer low prices and a vast variety of products. Offering consumers not only low prices, but in many cases a one stop shop. The arrival of these big chain ...view middle of the document...
This may be the reason the business was for sale. The former owners attribute the drop in profits to “our lack of commitment during these years”. The current owners have the same problem, even more severe because both have full time jobs and can only be present at the store “several times a month”. The management of all day-to-day operations has been entrusted to a new manager. This new manager has to practically run the store by himself. He was an assistant manager at a building supplies store, which provided him with at least some knowledge of the business, and some level of management skills. However, these skills may not be enough to manage Twin Peaks Building Supplies alone, especially when the owners themselves have no experience or knowledge of this type of business. The owner’s lack of experience and knowledge of this kind of business, combined with their lack of presence in the store, could drive poor decision making. Making poor decisions in any business can reduce revenue and/or increase cost. Also, because they are not present to participate in the day-to-day operations, there are no checks and balances for cash, revenues, expenses, inventory, etc. This can increase cost of sales, for example if revenues are not properly recorded, cash is mishandled, expenses are not approved or monitored, and inventories are missing or misplaced. The more pressing issue, however, is that the company has run out of cash, and has reached the limit on its line of credit; which has been utilized and relied on to pay for the day-to-day operations. Without funds to run operations the company eventually will come to a stall. It is imperative that the company gets immediate cash inflow. Furthermore, the income statement year-to-day operations show a net loss of $33,000. The owners should formulate approaches to increase revenues and/or decrease costs. The furniture and appliance line must be evaluated to find out if it is creating or eroding profits. To do this evaluation two different sets of financial statements need to be prepared, one for the traditional business, and one for the new furniture and appliance line. Another issue the company is facing is competition from a “new Mr. Build-All Center”. These big box stores are known for driving small local stores out of business. Strategies must be put in place to allow Twin Peak Building Supplies to compete with the lower prices and extensive products selection offered by this large retailer. The company has already experienced price pressures. According to the case article, in order to maintain prices at the same level of competitors on numerous occasions prices have been reduced. In order to be able to compete on pricing while protecting profits, the company needs to lower cost of sales and increase revenues and/or lower the cost of operation. If this strategy is not possible then the company must find other ways to offer costumers value based on something other than lowest price. For example,...