MBA FPX 5010 Assessment 4 Attempt 1 Expansion Recommendation
Expansion Evaluation of Organization
This report aims to explore the feasibility of the XYZ Company dealing in food industry and is currently making plans to expand its new services and products to open a second production facility. The company produces staples (food product) that have a stable demand and the company aims to invest $7000, 000 for the new equipment purchase with a ten-year life span. If other assets can be sold, they would be sold at approximately at 1000,000 dollars. The company also requires 12% return on investment and the role of our organization is to recommend whether the company should invest or not. Therefore, as an accounting manager, my role is crucial to observe the facts and statistics to recommend an expansion strategy (Soti 2018).
Financial Information Analysis
The company needs an effective plan to expand; however, expansion planning is more important when the management has better information to see the fact with a financial analysis of the organization. This will help them better assess the situation of the company. For instance, the Staples XYZ organization is aiming to expand its current product line with extra or additional products and also add second facility to product. The company’s income statement has been analyzed for the year 2022; the statement shows that the company has not earned ample profit or revenue until the addition of the additional product called the Product B. The increase in the company’s profits happened until the final year in the accounting period. Moreover, the income statement also shows the total figures such as the total revenue of the first product a and the second Product B for a period of ten years. The data shows that in the past ten years, the forecast was almost $52, 140, 000.
Furthermore, the cost of goods sold COGS of the company was also estimated to be near $19,675, 883. The company also earned the gross profit amounting to $30,064, 004. Moreover, the depreciation and taxation expenses are also listed in the company’s income statement; the point to be noted that the depreciation expenses as well as taxes are all categorized outside the CGS. The total number of depreciation expenses is $3,250,000 and the taxation expenses amount to almost $7,000,255.
Analysis of Risks Associated with the Expansion
For several food and staple organizations in the United States, international and local expansion has been a phenomenal plan to improve the economic conditions and revenues. However, expansion strategies and endeavors are not without legal issues or political and human resource risks. Firstly, the weaknesses involve the currency fluctuations whenever stable companies think about expansions (Onyusheva, 2018). As the country’s currency fluctuates in the market, the planned returns can be affected and not go according to company’s expectations. Moreover, in terms of customer’s services, the long queues and not having enough employees at the counters is another frustrating thing for the customers. Some employees need training to become nice and polite with the customers, their rudeness can cost business significantly. Moreover, there are also some calamities and uncertainties associated with this expansion plan that the company cannot ignore. For instance, the company may have to face unexpected diseases such as COVID-19 that can impact the smooth flow of company’s sales tasks as employees get sick (Harb et al., 2019). In the perspective of goods’ procurement, the food quality and content can also decline due to the pandemic.
Moreover, if the company does not follow the requirements of the Food and Drug Administration, despite having good revenue and expenses standing in the financial statements, it can be a vague decision to expand at this moment. The company has calculated its depreciation by using a 7-year life modified accelerated cost recovery system (MACRS). This also raises some questions whether the company should use the existing accounting framework or the procedure or should the company consider the Straight-Line method. According to Onyusheva (2018), the straight-line method used by companies for depreciation is the most straightforward and simplest way to measure it.
The method becomes more beneficial for small businesses when the value of an asset reduces over time and it begins to wear out with a quick rate. Moreover, the company can use its assets including the technology tools and IT equipment and some office furniture and vans in a time period. However, the law does not require the organization to use the MACRS depreciation method because it is more used for the depreciation of property since 1986 (Harb et al., 2019). Finally, the expansion is also risky in a sense that the supply chain risks are growing due to operations being conducted in other places and regions which may result in unforeseen supply chain risks. The company may suffer from an exposure of materials in transit and other natural hazards can also impact the supply chain.
Explanation of Recommending
The analysis provided in the above sections also show that the XYZ Staples Company has good potential in other regions of the United States to grow and expand its products to earn more revenues. Some cities and areas are the center of research and growth opportunities for the company to launch new products and meet the demanding needs of their customers. However, the company must focus on expansion in the areas where there is high demand for these food products such as vegetables, milk products, and fruits (Björklund et al., 2020). This means that the company must be focused on the areas of population where people are in need of affordable prices and demand reasonable prices.
Moreover, the company should also work on the promotion or an increase in human resources and should hire some high-profile marketing professionals and sales people to deal with customers nicely and avoid rudeness (Stephens, 2018). This is a viable strategy in metropolitan areas of the country where the competitors are McDonalds and Starbucks making distinctive products to meet the needs of people. Moreover, the company must raise its current value of nutrition in the food products and staple food so that people preferring burgers must not eat from McDonalds due to particular health aspects and be in a good position to control the increasing waistlines. The company must also focus on enhancing the customer service by hiring more at-the-counter staff and that will reduce long queues to improve the satisfaction of people (Vasconcelos, 2021). After all these considerations have been done and conditions met for improving revenues and profits, then the company should think about expansion because at the current stages, the company needs a better risk management plan due to greater risks of expansion.
Björklund, T. A., Mikkonen, M., Mattila, P., & van der Marel, F. (2020). Expanding entrepreneurial solution spaces in times of crisis: Business model experimentation amongst packaged food and beverage ventures. Journal of Business Venturing Insights, 14, e00197.
Harb, M., Hagenlocher, M., Cotti, D., Kretzschmar, E., Baccouche, H., Khaled, K. B., … & Gearchange, M. (2019). Simulating future urban expansion in Monastir, Tunisia, as an input for the development of future risk scenarios. GI Forum, (1), 3-9.
Onyusheva, I., & Santhanakrishnan, R. (2018). RISK ASSESSMENT AND MITIGATION STRATEGIES FOR AFRICAN MARKETS EXPANSION: THE CASE OF PHENIX CONSTRUCTION TECHNOLOGIES. The EUrASEANs: journal on global socio-economic dynamics, (5 (12)), 29-38.
Soti, K. (2018). International Business Strategy for Overseas Expansion of Local Small and Medium-sized Enterprises. GI Forum, 91(2), 129-144.
Stephens, J., Miller, H., & Militello, L. (2020). Food delivery apps and the negative health impacts for Americans. Frontiers in Nutrition, 7, 14.
Vasconcelos, J. M. K. V. P. (2021). SME internationalization strategy: poor sabers expansion to Switzerland (Doctoral dissertation).