Sunflower Nutraceuticals (SNC) Situation
Sunflower Nutraceutical (SNC) is a company based in Miami Florida that offers products and services of health improvements. The company started as an internet-based organization in the distribution of dietary supplements such as vitamins, minerals, and herbs for human consumption. However, SNC has experienced challenges in maintaining a growth of the business as the business has reached the breakeven point. The problem is based on the growth of the company and maintaining a steady cash flow. Furthermore, SNC organization has recorded a flat annual sale of $10 million whereby the working capital has failed to grow as predicted. For instance, the company has had challenges of financing the payroll and maintaining a functional cash flow. Therefore, the company would need to implement various strategies that would help in developing their growth rate and maintaining a functional cash flow system.
The growth of an organization concerning cash flow would recommend the implementation of strategic planning that involves the working capital. For instance, there are various ways of improving a working capital in the business. A company can decide to obtain new customers, capitalizing on supplier discounts, reduce inventory, increase pricing, discount on loans, choosing lease over a purchase, and form a buying cooperative (Kogan & Papanikolaou, 2014). Similarly, the company can have other opportunities that could help in improving the working capital such as constricting accounts receivable, avoid some products that are performing poorly, develop private label products, big-box distribution strategy, supplier credit negotiations, global expansion, and obtain high-risk customers. Some of these strategies would help the organization in maintaining a flexible cash flow system and would eventually help in developing a growth of the organization.
The problem that is facing SNC organization in capital constraint is based on the failure of the company to acquire a favorable financing strategy. For instance, the company does not have the best debt and loan rates from other financial institutions. The presence of debt limitation can affect the productivity of an organization. Similarly, a company may have a problem in the management of cash flow due to the internal and external capital rationing. External capital rationing is caused by the organizational failure of raising funds in external equity markets (Banos-Caballero, Garcia-Teruel, & Martinez-Solano, 2014). The internal capital rationing is based on the restrictions imposed by the firm’s management on obtaining soft loans. Therefore, lack of capital or financial sources can affect the growth of an organization hence; would as well affect the cash flow management. SNC is faced with capital constraints because of the credit limit imposed by the management. The company could not exceed a credit of $3.2 million which is a setback to the growth of the business. Therefore, the best option to handle the problem facing SNC is to ensure that the management removes the capital restriction to facilitate the financing of the projects in the organization.
Phase 1
SNC organization can benefit by implementing various opportunities that would help in improving their cash flow and the growth rate. There are three opportunities meant for improving the cash flow in SNC which are obtaining new consumers, supplier discounts, and reduction of the inventory. Obtaining new customers is the process of enlarging the market size of an organization (Snee, 2010). Getting new customers is similar to the purchase of new consumers in a market. The first step of obtaining customers is the use of advertisements. Adverts can help in the marketing of organizational products and services to a new market that was not on the list. An advertisement generates promising leads of a market size in exchange of the resources invested in the adverts. For example, an advert is aimed at targeting new customers in the market which showcases the value that would be offered to the new customers. Examples of adverts are television advertisements, online adverts, radio adverts, and print adverts.
Another form of obtaining new customers is networking and referrals. The strategy is based on asking the existing customers to refer the company’s products to other potential consumers. The strategy will only succeed if the existing customers are satisfied by the products. Similarly, another strategy of obtaining new consumers is teaming up or host-beneficiary platform that involves the use of a database of another business with similar target consumers (Snee, 2010). The new business would help in creating recommendations of the SNC Company to their customers. Moreover, strategic alliances can help in gaining new customers whereby the two companies with similar target market can help one another in reaching a new market in their business. Therefore, the process of obtaining new customers would help in improving the growth and cash flow of SNC Company.
SNC can as well benefit from the process of buying resources in bulk. Supplier discounts can help in reducing the costs of raw materials when purchased in bulks. However, the rate of growth could not be improved by capitalizing on supplier discounts. Most of the suppliers would offer discounts but would not play a significant role based on the percentage of the discount. Additionally, inventory control can as well help in improving the cash flow of an organization. For instance, reducing inventory could help in freeing up the working capital of an organization. For example, the organization can reduce the supplier lead-time. Lead-time is the time taken before the products arrive at the organization (Snee, 2010). The organization can as well eliminate outdated inventory in their stock to create room for new inventories. Moreover, the company can optimize order size and purchasing frequency based on the needs of their customers to avoid overstocking or under-stocking. Therefore, inventory control can help in minimizing the costs of inventory storage, inventory carrying costs, as well as increasing the working capital in the long-run. Every strategy of increasing the working capital can benefit SNC organization but the best criterion to invest is obtaining new customers because of its impact on the performance of the business.
Phase 2
SNC organization can as well invest in various strategies that would enhance their performance, enlarge the working capital through the creation of free cash flow. For instance, SNC has decided to obtain a big-box distribution strategy and increase their online presence and compare the results of applying both strategies. Big box distribution strategy is the process of acquiring large premises that would facilitate the storage of various products. The strategy focuses on large sale volumes in an organization. The benefit of using the big-box strategy is obtaining good prices of the commodities because the profit margin of every box is lowered (Hernandez, 2003). SNC benefited from the use of big-box strategy whereby the revenues increased, and cash flow system developed. However, the system can affect the Earnings before Interest and Tax (EBIT). Another opportunity was the increase of online presence such as advertisements and other strategies of obtaining new customers. The strategy helped in increasing sales with a small percentage. Advertisements can be costly in an organization and could not predict the degree of impact towards the process of obtaining new customers.
The strategy of obtaining new customers can vary depending on the need of an organization. For instance, SNC wants to obtain new consumers as a way of increasing productivity and improving the working capital. Moreover, the two options of increasing the working capital used by the SNC include the use of big-box distribution strategy and the expansion of online activities. The best option to take is the use of big-box distribution strategy based on the outcomes. The strategy has shown the increase of working capital (Hernandez, 2003). However, use of online activities have increased revenues but have responded with a negative increase of the working capital. Therefore, the best option is to invest in big box distribution based on its impacts on the growth of the business, the cash flow and the overall development of the working capital. Moreover, SNC Company should incorporate big-box strategy through the acquisition of Mega Mart Inc. as one of their customers.
Phase 3
Different opportunities for growing cash flow and the growth of the SNC business would have diverse effects towards the revenues and their working capital. For instance, the acquisition of new and high-risk customers would increase the overall sales volume (Castillo et al., 2009). However, the high-risk customers can as well affect the accounts receivable balance. For example, the revenues would increase but would not have an impact towards the EBIT opportunities. High-risk customers are based on their nature of laundering money whereby a company that engages in business with high-risk customers may benefit instantly but as well risk in legal matters (Castillo et al., 2009). For example, SNC can obtain Midwest Miracles as their new customer, but the outcomes would affect their performance in the long-run. The new customer would enhance the growth of cash flow system in the organization and increase their working capital. Negotiating on supplier discounts can as well develop the profit margin and lower the accounts payable (Lee et al., 2013). For instance, the effect of obtaining discounts from suppliers can enhance the increase in the working capital. The new supplier credit terms could also increase the cash flow in the organization. The global expansion of the business can as well be termed as a strategy of improving the working capital. For instance, global expansion of SNC organization would increase their revenues, cash flow, and their working capital. The examples of the globalization of the business include the identification of target markets and the development of a business plan that would suit the new environment. SNC can expand their business globally by introducing several branches outside their main organization. Therefore, the outcome would enhance the growth of the business and the cash flow as well as develop their working capital. Therefore, the best option is to enhance the globalization of SNC business by introducing new branches in other parts of the country.
Conclusion
SNC Company has the problem of expanding their working capital and constraints of finances. The company also has the problem of developing their cash flow systems whereby the new strategies of obtaining new customers, supplier discounts, and reducing inventory would help in improving the working capital. However, different strategies can affect the business’s growth depending on the time and resources available. For instance, SNC has three phases of developing their organization whereby the results can affect the business differently. Moreover, the use of simulation process in making business decisions can benefit in realizing the best steps in the growth of the business. Businesses can develop their cash flow and working capital through the simulation process whereby the outcomes depend on the strategies employed in the process.
Moreover, working capital is the difference between the assets and the liabilities of an organization. A high working capital means that the company is inflow is balanced, and the company is at its best. However, a negative working capital puts a company at risk based on the spent amount of cash than a company can generate. Therefore, the simulation of working capital has shown the difference between the steps of obtaining a positive working capital and the strategies of improving the working capital, cash flow, and the overall growth of the business. Playing the simulation procedure can have diverse effects on business based on the results obtained through the process. Therefore, the first simulation process helped in obtaining the strategies of increasing the cash flow of SNC organization. The second process helped in revising the growth of the business while the third process involved the procedure of obtaining the best procedure for improving the working capital. The second process involved the selection of strategic opportunities and closing others in the aim of comparing the results. The third process included the use of a single opportunity in every phase to obtain the difference in evaluating a business. Therefore, the results of every process were identical based on the need of an organization to secure an improvement in the overall working capital and the cash flow.
References
Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), 332-338.
Castillo, D., Guayta, R., Giner, J., Burgos, F., Capdevila, C., Soriano, J. B., … & Casan, P. (2009). COPD case finding by spirometry in high-risk customers of urban community pharmacies: a pilot study. Respiratory medicine, 103(6), 839-845.
Hernandez, T. (2003). The impact of big box internationalization on a national market: a case study of Home Depot Inc. in Canada. The International Review of Retail, Distribution and Consumer Research, 13(1), 77-98.
Kogan, L., & Papanikolaou, D. (2014). Growth opportunities, technology shocks, and asset prices. The Journal of Finance, 69(2), 675-718.
Lee, A. H., Kang, H. Y., Lai, C. M., & Hong, W. Y. (2013). An integrated model for lot sizing with supplier selection and quantity discounts. Applied Mathematical Modelling, 37(7), 4733-4746.
Snee, R. D. (2010). Lean Six Sigma–getting better all the time. International Journal of Lean Six Sigma, 1(1), 9-29.
