Introduction
FastBikesInc is a company that specializes in the assembling and repair of motorcycles. The company is located in Portland, Oregon. The company is currently facing financial challenges. Managing cash flows at FastBikesInc is paramount to ensure the company does not fall into too little money to sustain the business or too much liquid cash which reduces returns on investment (Fried 108). FastBikesInc should strive to create more cash that will be sufficient to finance its loans, pay its workers, and invest more. Money in a business has three main functions, that is; for speculation, recurrent expenditure, and saving (Fried 57).
From the books of accounts, as purported by line managers and Nancy, FastBikes has more expenditure on utilities, rent, and wages. But when the complaints by the workers are put into focus, it seems the salaries and wages paid are not enough or are lower compared to those offered by the competitor-Motorcycle For life Inc. It creates the need of buying motorcycle For Life Inc so as to create a monopoly in deciding on the wages to be paid (DuBrin 28).
Snowmobile manufacturer has the ability of lending FastBikesInc motorcycles on credit and offers training to their human resources. The opportunity has the advantage of creating disposable cash at the fast track that was to be used for training (DuBrin 50)
Assumptions
This report is made based on a number of assumptions. The FastBikesInc motorcycles business is assumed to be a going concern that is it intends to go on with its operations to a time that is not known. This will enable the owner to plan well as he has no intention of ending operations. FastBikesInc Motorcycles Company has complied with all the required rules and regulations and thus it is operating legally. All the legal fees required by both the national and the state governments have been paid and the necessary documents acquired. The mode in which the company conducts its business is purely defined by the forces of demand-supply.
There are no cases of government price controls or arbitrary fixing of prices by any person hence no one can dictate the price. Fourthly, the company carries out transparent accounting in which all expenses for the period are determined and properly accounted for after being incurred whether they have been paid or not. Revenues are accounted for when either cash or credit sales are made irrespective of whether the payments have been received.
This will enable us to have a clear assessment of the profits and losses. The business is a private enterprise is assumed to be profit-motivated hence it is offering the best services and prices at its disposal in order to maximize profits.
It’s also assumed that proper accounting is carried out on all the transactions and books kept for future reference. This will ensure that faults are easily identified in the future. Faults such as unfair trade practices, bad debts will be clearly seen. We also assume that the business is subjected to favors that place it at an unfair advantage as compared to other companies that conduct the same kind of business. The business is engaging in a legal activity. Also, all the accounts are in dollars and the owner has a separate bank account with that of the business.
Challenges and Solution
The main focus that the managers of FastBikesInc have in hand is to increase liquid cash that can be able to finance the loan and pay bills. To create more disposable cash, the company has four options that are; increase revenue at a higher margin than the increase in costs, reduce costs at a higher margin than the decrease in revenues, cut costs at the same revenue it gets and lastly increase revenues at the same costs (Carruthers and Wendy 413).
The following recommendations could be used by FastBikesInc to ease cash flows and invest in the right venture;
FastBikes may partner with Snowmobile manufacturer in their motorcycle business. The end product of this partnership is the reduction of cost of sales incurred by FastBikes which will lead to an increase in revenues. Rent and utility bills have been increasing in the business probably due to the amount of space and security required for motorcycles and its spare parts. Being in business for twenty years, the company knows its re-order level and the safety margins needed for its operations.
The fast track can reduce the space needed for the storage of motorcycles in the business and security by using the willingness of Snowmobile manufacturer to supply motorcycles. The company should determine the reorder quantity that will minimize storage and security costs while at the same time save on carriage inward costs which will be incurred by the supplier. If rent in Halifax area is calculated per floor area that a business occupies, FastBikes should ensure saving costs of rent by reducing the space occupied.
If the company has leased the buildings; they should negotiate with the owner to allow the facility to be used together with the Snowmobile manufacturer so as to save on storage costs. That is; the extra space in the building should be used by Snowmobile to store its motorcycles supplied at a shared cost hence reducing the unit cost of sales(Bratton 67).
The company speculates an increase in sales in the future with the pickup of the economy. The speculation creates a need for the company to ensure it has adequate stocks to ensure it satisfies its clients during the period. The company should make sure it attracts suppliers who can supply motorcycles and its spares during the peak season in case it will not have sealed a deal with a snowmobile manufacturer. In case the deal will have been sealed by the time, FastBikesInc should project the sales and revenues that will be enough to finance its bills and the desired revenues.
On the other hand, Bill’s offer of Motorcycle for life Inc looks very much lucrative. The only problem is that FastBikesInc is in a cash trap(Bratton 69). The company needs to negotiate with Motorcycle For Life Inc to see if it can be bought on credit. If so, Joe needs to look at if there is any cash that can be saved from sealing a deal with Snowmobile Inc which is able to finance installments at Motorcycle for life and top up on the $150,000 loan. If it is not possible to seal a deal of purchasing the company on credit, Fast track should look at if it can get a business loan to finance the purchase of Motorcycle For LifeInc from the cash saved from the Snowmobile deal.
If the second option does not bear fruits, FastBikes should look for an investment partner so as to reduce the purchasing burden. All these measures should be taken so as to reduce competition hence cutting costs on marketing and benefiting from the goodwill created by Motorcycles for life. If all the options will not bear fruits, FastBikesInc should leave the opportunity and focus on strengthening its business while keeping pace with the competition offered (Bratton 67).
Planning
In strengthening its business operations, FastBikesInc should look at increasing its cash flows. The focus now should be drawing on a cash budget that can be able to create extra liquid cash to finance bills. The following processes should be used to create cash to finance the loan, rent, utilities, and wages. FastBikesInc may renegotiate its lease to lower rent or temporarily a lower rent during the low pick business until the business picks up or for a period of time, whichever sounds good to both parties.
If there is unused office space due to the low season which has created more unused storage space, FastBikesInc should lease it for the low season period to a local investor who needs storage space or sublet it as an office to any other investor in the Halifax area. If the deal is sealed with Snowmobile during the low season, Joe should look if it is possible to lease his building except for the garage during the low season and do clerical duties from home in a spare bedroom or sitting room.
It should be considered temporary until the business picks up. For other line managers, Joe should offer the option of leasing them to other companies, working on an open office plan, or giving them a holiday leave so as to cut on office and salary costs while at the same time increasing sales from leasing offices. FastBikesInc should get rid of all excess stored stuff by selling them as second-hand goods or scrap to increase cash.
It reduces the need of paying for storage costs for things that are really not in need. Lastly, the company needs to review its utility bills to look at how they can be reduced. Some of the practices that can be enforced may include disabling some telephone lines so as to reduce expenses on telephone bills, renegotiating security and insurance bills, cutting electricity costs through reducing the use of air conditioners, refrigerators, heaters, and garage equipment (Fried 60).
Best Management Practices
FastBikesInc should seal a deal with the snowmobile manufacturer so as to cut costs related to the cost of sales, storage, and security costs which will end up increasing liquid cash in the business. Due to the cash trapped nature in the business, FastBikesInc should negotiate with Motorcycles For Life Inc to see if the business can be bought on credit or look for financing from a local bank if Bill rejects the credit option. If it also aborts FastBikes should look for an investment partner or leave the business opportunity. Cash budgeting which is the blood of any company should be done so as to see if FastBikes can create liquid cash to finance its expenses. Storage and office space can be leased; excess materials in the office sold as second-hand goods or scrap and utility bills lowered (Fried 57).
Balance Sheet
Fast Bikes Corporation
Balance Sheet at 31 August 2011 (In Us dollars)
Assets
Current Assets……………………………………………………….. 700,609
Long Term Investments & Funds………………………………. 401,460.
Property, Plant & Equipment……………………………………… 819,716
Intangible Assets……………………………………………………… 200,222
Other Assets…………………………………………………………….. 58,000
Total Assets……………………………………………………………. 2,122,007
Liabilities
Current Liabilities……………………………………………………… 300,122
Long Term Liabilities…………………………………………………. 517,000
Total Liabilities………………………………………………………. 817, 122
Owners Equity
Contributed Capital……………………………………………………………… 976,030
Retained Earnings……………………………………………………………….. 345,880
Total Stockholder’s Equity……………………………………………………. 1,050,670
Total Liabilities and Equities………………………………………………….2,372,580
Source: Carruthers, Bruce, and Wendy, Nelson. “Accounting for Rationality: Double-Entry Bookkeeping and the Rhetoric of Economic Rationality”. American Journal of Sociology, 97(2006) 412-420.
Works Cited
Bratton, William. Enron and the Dark Side of Shareholder Value.New Orleans: Tulane Law Review, 2002.
Carruthers, Bruce and Wendy, Nelson. “Accounting for Rationality: Double-Entry Bookkeeping and the Rhetoric of Economic Rationality”. American Journal of Sociology, 97 (2006) 412-420.
DuBrin, Young. Fundamentals of organizational behaviour. Toronto: Thomson Nelson. 2007.
Fried, Gunther. “Relevance Added: Combining ABC with German Cost Accounting”. Strategic Finance 23 (2005): 56–61.