How to Increase Monthly Turnover and Profit in a Newly Acquired Business

Initial Analysis and Business Plan

An entrepreneur, Elon Gates has bought a company that has been established for a year.  During this time the foundations of the business, a decent product, a workable marketing strategy and a sound financial position has been put in place.  Turnover up to now has been fair but not spectacular and the founder was operating from his own home.  Elon Gates has appointed you to act as the management responsible for running the business.  The business goals are to increase monthly turnover to £10,000 and monthly profit to £3,000 within 12 months. 
This is the target to set in the Business Plan (part 1, see below), BUT this does not have to be followed and achieved exactly.  Marks will not be adversely affected if running the business proves difficult or unsuccessful, or if it goes bust.  The important thing is to try to run the business well and EXPLAIN THE PROCESS that you follow in running the game and trying to achieve the business goals.
 
Do not change the market segment from Solo Businesses.
 
Requirement for the assignment
 
(1) (i) An initial analysis of the organisation and a business plan on how to achieve the required target.  A monthly cash budget should be provided along with a budgeted Statement of Profit or Loss covering a 12 month period.
 
Some guidelines for writing a business plan will be provided in Lecture 7.  These guidelines do not need to be followed exactly and the group should be guided by its own assessment of what would be appropriate for someone like Elon Gates, who might wish to reassure himself that the group is competent to take control of the business.  See the pro-forma Business Plan provided on the “Advisor” menu on SimVenture.
        
You should produce:

(ii)  A monthly reporting package which contains information used each month to help them make decisions.  You need to identify 16 items in total, 4 from each of Sales and Marketing; Operations; Organisations and Finance. As a minimum, you should consider the Statement of Profit or Loss for the business each month.  The package should include an explanation of how each item of information is used, for example, number of orders placed used to judge the success of marketing undertaken.  Note that the reporting package may contain financial, marketing, operational or other information.  The actual data for the business for each month does not have to be given, just details of the main items considered and why they are important.

[Part (1ii) is worth 16% of overall assignment mark]
 
The new financial controller has established the following:
 
(1)  All sales are supposed to be on 30 days credit. In March 2020, against fierce competition from other wholesalers, Ocean Wave Clothing won a large customer account with All things Sailing, a marine retailer. It seems that All things Sailing are tough negotiators and a difficult customer. They also require a wider range of goods than Ocean Wave Clothing have previously stocked.

(2)  Ocean Wave Clothing has a number of suppliers but due to retrenchment in the industry, both the company’s main suppliers are controlled by the same large group. This group imposes credit terms of 30 days on all but its largest customers, and applies very strict credit control procedures to smaller customers who fall significantly behind with payment.

(3)  Depreciation for 2019 was £10,000. Two new vans were purchased to service All things Sailing. There were no disposals of assets.
 

Required:

(a)  Explain how working capital and profitability have changed during the current  year, considering the information given.
(b)  Calculate the operating cash cycle of Ocean Wave Clothing for both last year  and the current year, and comment on the results.
(c)  Suggest ways in which Ocean Wave Clothing could reduce its working capital  and particularly reduce the bank overdraft.