Acc 561

The Guillermo Furniture Store

FIN/571

July 21, 2011

Jeanne Walker

The Guillermo Furniture Store

The Guillermo Furniture Store, a Sonora area manufacturer and retailer of handcrafted furniture, is facing increased competition (University of Phoenix, 2011). The competitors are maximizing efficiencies using technology and capitalizing on the expanding population in the area. The Guillermo Furniture Store (Guillermo) now has serious business problems; economic principles have driven labor costs up and prices down, causing variable costs to rise significantly and decrease revenue; without making changes, the Guillermo Furniture Store will consume its available capital to sustain its business operations within a few years.

Guillermo has concluded there are two alternatives to help reposition itself. First, the business could invest in high-tech methods to improve efficiencies in production (University of Phoenix, 2011). Second, the company could form a strategic alliance with other manufactures and broker their products. The 4D consulting team has prepared the following analysis and recommendation.

Net Working Capital Available

“The difference between current assets and current liabilities is the firm’s net working capital, often simply called working capital” (Emery, Finnerty, & Stowe, 2007, p. 47). According to the Guillermo balance sheet, the total current assets are $495,163 and the total current liabilities are $172,730 (University of Phoenix, 2011). Therefore, Guillermo has $322,434 in working capital. Guillermo has established a company policy to maintain a working capital position of at least $15,000. Ultimately, 4D consulting approaches this analysis limiting Guillermo’s investment to $300,000.

Sensitivity Analysis

The current situation requires a sensitivity analysis of what outcomes may occur based on poor projections (Emery, Finnerty, & Stowe, 2007, p. 304). A sensitivity analysis will...