Guillermo Furniture Store Concepts Paper Erica Mitchell University of Phoenix Corporate Finance Week 1: Foundations of Finance FIN:

571 Dr. L. Daniel, Jr. September 30, 2009 Guillermo Furniture Store Concepts Paper Guillermo Furniture Store is a company that manufacturers furniture in Mexico. The store is owned by Mr. Guillermo Navallez. The location of the store is prime, in that Mr. Navallez can take advantage of cheap labor, cheap housing, and an ideal weather situation. For a very long time, Guillermo Furniture Store had few competitors, which allowed him to utilize a high markup percentage. This is not the case presently. Guillermo now has two competitors that combined forces and has hurt his business financially. Mr. Navallez must decide what is best for his business financially. In order to make proper decisions for his business, he needs to create several forecasts to determine the proper amount of cash flow, the amount of products he needs to sell and make, also the amount of overhead he can carry. Forecasting is an essential tool every company needs to utilize. This tool is basically planning financially. It can help determine deadlines and several pieces of important financial information. Now that Guillermo Furniture has stiff competition, Mr. Navallez must focus on the competitive economic advantage of his company. A companys competitive advantage largely determines its ability to generate excess returns on capital and links the business strategy with fundamental finance and capital markets (Greenwald and Kahn, 2007). Thinking about a competitive economic advantage, Guillermo has many things to consider. He needs to think about how to generate more revenue, which will obviously be beneficial in the debt repayment of the furniture store. Also if he can produce a unique product, he could eliminate some competition. There have already been several ideas he has been contemplating. Mr. Navallez can decide whether to incorporate the following ideas into his business or not: 1. Advancing his current technology by incorporating a computer controlled laser to improve production. 2. Guillermo could become a furniture representative for a company in Norway 3. The furniture store could produce coated furniture Since Mr. Navallez has discovered these options and potentially plans to utilize an option, he would be practicing economic efficency. This is a general term for making maximum use of available resources (Black, Hashimzade, and Myles, 2009). In order to boost his revenue and increase traffic and sales, he has found the above options available. He is taking advantage of the resources that are available to him and his business. By analyzing the income information, Guillermo can make a sound financial decision. For example, net income before taxes illustrates how much revenue after expenses the company produced. The furniture stores current income before taxes is $42,577. If he decides to utilize the computer controlled laser, the income before taxes would be $195,564. Finally, if he decides to become a representative, he would make $50,955. The current income before taxes states that the best option would be to utilize the computer. There are several expenses, however, to take into consideration. First and foremost, the purchase price of

the computer needs to be address. This is a huge start-up cost. Guillermo can create a forecast and discover the time-frame it would take the computer to pay itself off. By utilizing the computer, the company virtually eliminates employee expenses. Also, the production time would be decreased, creating an excellent opportunity to improve the competitive economic advantage. If Guillermo can supply the needs of the consumer faster than the competitors, it would increase sales and traffic to the business. Guillermo needs to concentrate on the facts and not be afraid to take a risk. In Corporate Financial Management risk aversion is discussed. Risk aversion is avoiding risk when all else is equal (Emery, Finnerty, and Stowe, pg. 28). If Guillermo concentrates on the facts and analyzes forecasts, he can make the best decision for Guillermo, potentially generating an increase in revenue. References competitive advantage. Greenwald, Bruce and Judd Kahn. 2007. Retrieved 30 September 2009 from: http://www.capatcolumbia.com/ValueBsdRsrch/competit.htm "economic efficiency" A Dictionary of Economics. John Black, Nigar Hashimzade, and Gareth Myles. Oxford University Press, 2009. Oxford Reference Online. Oxford University Press. Apollo Group. 30 September 2009 http://www.oxfordreference.com/views/ENTRY.html?subview=Main&entry=t19.e3583 Emery, Douglas R., John D. Finnerty, and John. D. Stowe. Corporate Financial Management, Third Edition. 2007. Pg 28. Retrieved 30 September 2009 from: https://ecampus.phoenix.edu/content/eBookLibrary2/content/ereader.aspx?assetm etaid=c0b456ce-0b58-47fd-8e6a-55ea7072a1f2&assetdataid=5017a0d1-b9a5-4176-9db8-38ea2f6b3f5b