Running head: MANAGING GROWTH ASSIGNMENT

Managing Growth Assignment

FIN/571
June 16, 2014
Gurpreet Atwal

MANAGING GROWTH ASSIGNMENT

Managing Growth Assignment

Throughout the past six weeks, this class has given the tools to analyze all the financial
statements for Sunflower Nutraceuticals with accuracy and use them to make educated decisions
in the working capital simulation. The following are decisions that were made during each phase
and how they influenced the final outcome. Along with how they affected SNCs working capital
and what general effects are associated with limited access to financing.
Background information of Sunflower Nutraceuticals (SNC)
Sunflower Nutraceutical (SNC) is a privately owned company. They are wide distributor
of all the vital supplements such as herbs for womans vitamins and minerals for all consumers
(mainly womens), distributors and retailers (Harvard Business School Publishing, 2014). The
business was started after 2006, where SNC expanded their operations and opened various
outlets. They have been overly successful in producing their own brands of sports drinks,
vitamins for teenagers, metabolism-boosting powders, and other products that enhance the
metabolism system of humans. SNC is open to the potential of growing into a major
nutraceutical distributor, but they have been struggling to breakeven which have forced them to
exceed the companys credit line to $300,000. They are only able to use a small percentage 12%
to evaluate and invest in new opportunities that could result in a good return.
Phase 1 Years 2013-2015
The first phase presented four opportunities that could be helpful in growing the
company.
1. Acquiring a new client SNC acquired Atlantic Wellness a health food giant to their
product line. This decision increased the companies EBIT approximately $260,000

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and their sales figures by $4 million. Even through SNCs sales and EBIT figures
increased, the net working capital and profit margins remained the same.
Acquiring Atlantic Wellness as a new client would help SNC increase their sales, but that
will come with a cost of more inventory and accounts receivable. That could cause an issue
because SNCs currently had to keep a minimum cash amount $300,000 on hand for any
company operational needs. However, this could be solved by making a good deal with Ayurveda
Naturals.
2. Leveraging their supplier discount- The company is considering adding Atlantic
Wellness to their product line that would double their sales for $2 million. Also, SNC
is considered signing a contract with Ayurveda Naturals which have favorable
payment terms that reflect a net gain of approximately 60 days.
3. Limiting their receivable accounts- Super Sports Centers account for 20% of the
companys sales figures. That receivables account takes about 200 days to pay, and
that is a way over the 90 day average. To resolve this issue, SNC could drop Super
Sports Centers but they would take a sales hit of $2 million.
4. Discontinuing their poor selling nutraceutical products- SNC has more than 100
products, some of which could be dropped because they are outdated. Decreasing or
discounting the items would allow the company to :
a. reduce its DSI to approximately 86 days
b.

cuts its EBIT to $65,000

c. drop sales by $1 million

d. make more space for other products

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Phase 2 Years 2016- 2018

Phase two presented SNC with three more opportunities and those opportunities are as
follows:
1. Take up Big Box contributions The company partnered up with a sales giant MegaMart, and that decision increased sales 25% in 2016, 10% in 2017, and 5% in 2018.
This decision is a good idea but will drop profit margins and EBIT.
2. Expansion of SNCs online presence SNC is looking into expanding their
operations into new retail markets. They were presented with an opportunity to
become partners with Golden Years Nutraceuticals, where they could reach a larger
more diverse market. This decision reduced SNCs DSO figures because the web
sales being collected began quicker from 7 days to 3 days during the duration of 2016
to 2018 and another 2 days in 2018 ending at 12 days lowest than the start. SNC also
saw a 10% increase in sales which was ideal because it would allow them to increase
their sales with having no effect on the companys working capital.
3. Create a private label product- SNC has partnered with Fountain of Youth Spas to
make a private label where they can expand their product line and increase sales and
consumer base. Doing this would increase sales by 5% in 2016, 4% in 2017, and 3%
in 2018. It will also increase profit margin by 2% as well as DSOs and DSI. This
decision will allow SNC to increase the EBIT while slightly increasing accounts
receivable.
Phase 3 Years 2019-2021
The last phase there are three opportunities that were presented to SNC, those
opportunities are:

MANAGING GROWTH ASSIGNMENT

1. Acquire a high-risk client- SNC is looking into Midwest Miracles that are a potential
high risk client because of their excessive debt and risky financial position. Acquiring
this client would increase sales by 30% in 2019 for future prospects. They are a
potential risk because their company has a lesser chance of going bankrupt compared
to recovering. Other issues include an increase in DSO by 190 days and higher fees
with and longer than normal invoice payment periods.
2. Renegotiate current supplier credit terms- SNC wants to renegotiate its current terms
with its suppliers, so they used their main vendor Dynasty Enterprises as leverage.
They want a 3% discount for payment in 10 days. They want to use this same tactic
with other suppliers because Dynasty offered SNC terms of 2/10 net 30 which
reduces the cost of sales by $200,000 and accounts receivable by $812,000.
3. Adopt a global expansion plan SNC attained a client from Latin America named
Viva Famila, they have helped expand SNC into another country. This allowed SNC
decrease their DSO for a couple days because the client is covering the delivery
charges. This new decision has increased DSI by two days and increased sales by 3%
with profit margins remaining the same.

Final Outcome Metrics of SNC Years 2013-2021

The following numbers are estimated values and are in the thousands:
Sales

$13,000 to $23,430 an increase of 80%

EBIT

$882 to $2500 an increase of 183%

Net Income

$393 to $1346 an increase of 242%

Free Cash Flow

$264 to 1500 an increase of 468%

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Total Firm Value

$3248 to $5407 an increase of 66%

Effects of Limited Access to Financing

A firm with limited or no access to external capital may be seriously constrained in its
ability to pursue an optimal investment policy which, in turn, may hinder the firms growth
(Access to financing and firm growth, 2011). There are other effects such as higher interest
rates on loans and credit fees, force the company to face a complicated and expensive entry
(registration costs, policies, equipment fees and etc.) and exit procedures (Parrino, Kidwell &
Bates, 2014). This could make it challenging for companies to acquire property and the rights to
products.
Conclusion
After completing this simulation and this paper, there is now a newly found appreciation
for business owners. Handling competitors and looking at all the opportunities to acquire new
clients and businesses is a challenge. The position is a difficult task and is not for the faint of
heart. The simulation really showed the challenging ways companies have to deal with managing
growth and capital.

References
Access to financing and firm growth. (2011, March). Journal of Banking & Finance, 35(3), 709.

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Retrieved from http://www.sciencedirect.com.ezproxy.apollolibrary.com/science/article/p

ii/S0378426610003377
Harvard Business Publishing. (2014). Working Capital Simulation: Managing Growth. Retrieved
June 15, 2014 from
Parrino, R., Kidwell, D. S., & Bates, T. (2014). Fundamentals of Corporate Finance. Retrieved
from The University of Phoenix eBook Collection database.