Sunflower Nutraceuticals (SNC) is a significantly promising organization that must make informed operations decisions to survive. The entity requires intensive working capital to finance its activities. Some of the main operations include meeting sales and HR costs. Consequently, SNC must adopt suitable strategies to generate quick and stable cash flow to finance its operations with pressure and ensure growth. The following report outlines the impact of three consecutive management decisions undertaken over nine years, each taking charge for three years. The report analyzes and explains each decision’s impact on the firm and focuses on changes in cash flow and accounts receivable features for the three distinct phases.
Phase Analysis and Explanations: Tighten Account Receivable (2012-2015)
The first management decision at SNC, taking effect between the 2013 to 2015 phase, involved constricting account receivables. The option sought to make adequate money available to the capital-intensive firm by minimizing the time to convert customer orders into cash. Accordingly, this decision affected at least three cash flow account features, including days sales outstanding (DSO), accounts receivable duration (days), and cash conversion cycle (months). Other important business elements affected by this first decision included EBIT inventory changes and cash flow from operations. The first decision mainly involved eliminating customers taking too long to pay, thus weakening SNC’s cash flow. The choice affected Super Sports Centers (SSC), a critical client contributing about 20% of SNC’s annual sales in 2012. Doing away with SSC reduced SNC’s annual sales by two million dollars, leading to an equal reduction in revenues, a rise in inventory value, and a positive deviation in account receivable.
Importantly, the verdict to dismiss SSC and other customers with delayed payment history reduced SNC’s accounts receivables’ duration from 110 to 87 days. Account receivable gathering epoch indicates the typical duration, in days, that credit patrons settle their bills. Therefore, the shorter the accounts receivables’ period, the faster the company will receive finances to support its operations (Kimmel et al., 2022). Moreover, eliminating clients such as SSC who made larger purchases led to a positive change in account receivable and change in inventories in 2012 and 2013 due to reducing SNC’s stock-flow to customers. Subsequently, the general development from this first phase decision involved the reduction of accounts receivables duration by 23 days, thus streamlining SNC’s cash flow potential.
Expand Online Presence (2016-2018)
Neglecting Super Sports Centers and other customers with credit payment compliance challenges implied that the SNC’s ability to make money was reduced. Therefore, expanding online and seeking business with other high potential clients was an informed choice. SNC thus started doing business with its new online-based customer, Golden Years Nutraceuticals, in 2016. The opportunity impacted SNC’s cash flow in at least three ways. For example, the SNC- Golden Years Nutraceuticals’ bond contributed to SNC’s sales rise by 10%, 5%, and 3% from 2016 to 2018. Equally, SNC registered significant growth in net revenue and cash flow from operations over the three years after falling slightly between 2015 and 2016, possibly due to technicalities when transitioning into the intensive online-based business with the new partners. Furthermore, SNC’s changes in account receivable and change in inventory registered declining negative figures from 2016 to 2018.
Equally, SNC’s accounts receivables duration reduced from 81, 78, and 76 days for 2016, 2017, and 2018, respectively, after being 87 days in 2015, leading to an eleven-day improvement. Onwards, SNC exhibited a reduced DSO of 76 days, supporting a significantly constant profit margin. Accordingly, making the appropriate choice during the second phase led to the organization’s revitalization after shading off one of its major customers in 2013. According to Kimmel et al. (2022), online businesses frequently involve a reduced credit period, meaning customers pay within a shorter duration. The aspect explains the registered reduction in DSO at SNC, implying substantial cash flow improvement. Moreover, increasing online business meant that SNC exchanges its inventories faster, leading to a lesser end-of-year inventory value relative to the one available at the beginning of the year, thus negative changes in inventories from 2016 through 2018.
Adopting a Global Expansion Strategy (2019-2021)
The second phase verdict gave SNC the ability to deal with high potential local customers for income stability and growth. However, the company needs further development, which may be hard to realize by majoring in local dealings. Therefore, taking operations outside the U.S. was a viable idea for the organization. SNC realized this goal by expanding its client base through Viva Familia, a medium-size Latin American organization. The firm opted to first supply the global partner with low-priced products to tap into the Latin American market. Consequently, SNC realized three cash-related accounting changes: a 3% rise in initial sales volume, DSI increment by two days, and DSO reduction by two days. Similarly, dealing with Viva Familia introduced changes in SNC’s change in inventory for 2019 and 2020, registering a growing negative value for the element.
Accordingly, the last phase’s happenings are explainable through several aspects. For instance, Viva Familia is a foreign customer whose transactions involve shipment and external economic forces. Therefore, SNC must start the engagement by shipping low-cost items to the Latin American partner to compete those produced and sold locally, leading to the minimal growth in sales revenues. Furthermore, Viva Familia’ will to pay on delivery introduces the initially absent DSI component. According to Kimmel et al. (2022) DSI is the mean quantity of time, often days, it takes for a business to sell off stock. Products leaving SNC to Viva Familia involve shipment activities that SCN cannot directly influence, thus the development. Equally, dealing with exports exhibiting unclear market comprehension frequently involves maintaining larger safety stock (Kimmel et al., 2022), explaining the negative change in inventories values for 2019 and 2020. Accordingly, the three choices made at different phases synergistically work together to make SNC’s future bright.
Phase Results’ Comparison
Table 1: Phase Results’ Comparison
Reflection
The Sunflower Nutraceuticals (SNC) CEO activity provides unmatched business management experience. The exercise particularly nurtures and informs a manager’s decision-making capacity. As a business leader, I now appreciate that not only the size of purchases or cheque matters when gauging a customer’s business potential. Other aspects, such as the duration to pay, for the credit sales group, must come first, especially when the seller operates a capital-intensive business. Another critical takeaway from the present activity is that management often involves letting go and hoping for a better future. The information comes from SSC’s case and how SNC has to abandon the masculine partner to realize growth. Similarly, the SNC exercise reiterates the need to make informed decisions and support them to succeed by undertaking the necessary adjustments.
Reference
Kimmel, P. D., Weygandt, J. J., & Mitchell, J. E. (2022). Accounting: Tools for Business Decision Making. Hoboken, NJ Wiley.