Memorandum

To: Harry From: Management Consultant Date: 20th July 2012

Subject Report for determining course of action for Harry after his failure in business.
The Report evaluates the options for the future prospective. This report gives a detail analysis of the past performances of the business done alone or in partnership. It also contains criteria which have been the guiding factors in the given case and examines the options and weighs them on those criteria to decide the further course of action.

WAC Report on Harrys Hi-Fi Centre

TABLE OF CONTENTS
TABLE OF CONTENTS..................................................................................................................................... 2 EXECUTIVE SUMMARY .................................................................................................................................. 3 SITUATION ANALYSIS .................................................................................................................................... 4 PROBLEM STATEMENT.................................................................................................................................. 7 STATEMENT OF OPTIONS.............................................................................................................................. 7 CRITERIA FOR EVALUATION OF OPTIONS ..................................................................................................... 7 EVALUATION OF OPTIONS ............................................................................................................................ 8 RECOMMENDATION ..................................................................................................................................... 8 PLAN OF ACTION ........................................................................................................................................... 9 APPENDIX FOR EXHIBIT ............................................................................................................................... 10

WAC Report on Harrys Hi-Fi Centre

EXECUTIVE SUMMARY
After two years of huge success, High Fidelity audio equipment Business entered into partnership, with the motive of expansion and to devote more time to family, but suffered losses. Situation analysis gives three possible options for future growth and evaluates the pros and cons. The report recommends buying out other two partners. Concentrate on the middle class customers and try to lure the old customers back using technical expertise and low cost strategy. Cut overhead charges, remove glitzy items to reduce maintenance cost and fix working hours to devote time to family.

Word Count: 92

WAC Report on Harrys Hi-Fi Centre

SITUATION ANALYSIS
Business of selling high fidelity audio equipment was set up for buyers who were looking for good quality audio equipment at low cost, preferably middle class. The location was near a large shop which gave advantage of substantial pedestrian traffic. Also the technical expertise of the owner helped them to choose best equipment at lower price. During the first year the business was a huge success because the price was 20% less than other competitor. The following table gives the detail of sales and profits for year 1973.
Particulars Sales Gross profit Salary Expenses Net Profit Amount (in $) 214000 42000 9000 21000 12000

Exhibit 1: Sales and profit for year 1973-1974 One third of sales were from repeat trade or upgrade.

Income (1973-1974)
New Sales 66% Repeat sales or upgrade 33%

Exhibit 2: Breakup of Sales for year 1973-1974

WAC Report on Harrys Hi-Fi Centre

In Second year there was a rise in customers, sales increased and profit increased by 60%. The following table gives the detail of sales and profits for year 1974.
Particulars Sales Gross profit Salary Expenses Net Profit Amount (in $) 285000 56000 10000 30000 16000

Exhibit 3: Sales and profit for year 1974-1975 Also the sales from customer recommendation and repeat trade increased to 50%.

Income (1974-1975)
New Sales 50% Repeat sales or upgrade 50%

Exhibit 4: Breakup of Sales for year 1974-1975 With increase in customers and working hours and less time for family, two more partners were involved to go for expansion. The following table gives the contribution of each.
Name Cyril Norman Amount (in $) 20000 20000

Exhibit 5: Contributions made for new business Total capital for new business - $ 60000 This time the target customers were of higher income group with aggressive marketing. Focus was on influencing customers through luxurious furnishings and hence huge money was spent on shop fittings. Recession, increased overheads, loss of old customers resulted in big loss in the business.

WAC Report on Harrys Hi-Fi Centre

The following graph gives a representation of sales and profits over past 2 and half years.

300000 250000 200000 150000 100000 50000 0 -50000 1973-1974 1974-1975 1975(six Month) Sales Gross Profit Net Profit

Exhibit 6: Actual sales and profit graph for 2 and half years After reducing overheads of $1000 a month and increasing profit margin to 22% the reorganized budget was prepared .But these reductions were also not enough to meet the expenses. Following tables gives a breakup of the same.
Year 1975 -76 March 1975- Sept 1975 Oct 1975 March 1976* Sales 240000 150000 90000 Profit 56000 30000 26000 Expense 43800 40000 34000 Net Profit -14000 -10000 -4000

Exhibit 7: Breakup of Proposed Reorganized Budget for year 1975 1976 There were differences between partners regarding the market strategy, two were focusing on well to do upper class customer and one was focusing on middle class. Breakup of the shares value
Name Harry Cyril Norman Amount (in $) 30000 15000 15000 No. of shares 30000 15000 15000

Exhibit 8: Shares value of partners

Note *: Computed from reorganized monthly budget.

WAC Report on Harrys Hi-Fi Centre

PROBLEM STATEMENT
Determine the proper course of action for the Wi fi Centre business.

STATEMENT OF OPTIONS
1. Harry pulls out of the partnership. By this he will get $20000 from which he can start his own manufacturing plant. 2. Harry buy out both the partners, gives them their dues and take charge of the whole business. 3. Harry and his two partners sort things out and continue the business with a combined strategy.

CRITERIA FOR EVALUATION OF OPTIONS

1. Price competitive. 2. Target Market. 3. Growth rate. 4. Time to Family. 5. Risk Involved.

WAC Report on Harrys Hi-Fi Centre

EVALUATION OF OPTIONS
1. Harry pulls out of the partnership. By this he will get $20000 with which he can start his own manufacturing business.
With his sound technical abilities, he can build good quality loud speakers at low cost. He can sell it directly to middle class customers and also to small dealers providing good service facilities as well. Growth rate is higher. Less time for family. High Risk involved as the investment is high.

2. Harry buys out both the partners, gives them their dues (i.e. $20000) and takes charge of the whole business.
He can target the middle class customers and reduce the cost as compared to the market value. Moreover the profit gained can be totally taken by him that was earlier divided among three because of which they were going in losses. Good scope for growth as he can reduce the overheads and he can use his image and lure the old customers again back in business Less time for family. Comparatively low risk involved as the business is already established .He only has to pay $20000 to his two partners.

3. Harry and his two partners sort things out and continue the business with a combined strategy.
It will be difficult to reduce price as the cost of fittings and luxurious items is too high. Both middle as well as upper class can be targeted. Growth rate would be high as they are targeting both the middle class and higher end markets. Good amount of time can be spent with family. Investment shared by three of them, so risk is comparatively low.

RECOMMENDATION

WAC Report on Harrys Hi-Fi Centre

After evaluating all the options, 2nd option is recommended. Harry can takes charge of the whole business. As the business is already established and the risk involved is comparatively lower because he has experience in this business. Also his loyal customer base was good as half of his sales were from customer recommendation and repeat sales.

PLAN OF ACTION
Sell some part of shares to generate cash for paying debts. Remove the unnecessary and glitzy fittings to lure the old customers back and develop good customer relationship by providing his technical expertise. This will also decrease his maintenances cost. Decrease the overheads such as vehicle expense and remove manager. He himself can handle the shop. Continue with his strategy of targeting middle class customers. Fix the working hours to give proper time to his family.

Word Count: 985

WAC Report on Harrys Hi-Fi Centre

APPENDIX FOR EXHIBIT

Exhibit 1: Sales and profit for year 1973-1974 ............................................................................................. 4 Exhibit 2: Breakup of Sales for year 1973-1974 ........................................................................................... 4 Exhibit 3: Sales and profit for year 1974-1975............................................................................................. 5 Exhibit 5: Contributions made for new business ......................................................................................... 5 Exhibit 6: Actual sales and profit graph for 2 and half years ....................................................................... 6 Exhibit 7: Breakup of Proposed Reorganized Budget for year 1975 - 1976................................................. 6 Exhibit 8: Shares value of partners ............................................................................................................... 6

WAC Report on Harrys Hi-Fi Centre

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