B and F Computer Repair Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

B and F Computer Repair Case Study Solution

SIGNIFICANCE OF LOSS:

Jane Burns and Carl Foster are planning to shut the previous business and sell all the assets of company. The reason is the intense competition that company is unable to handle. The assets are worth $55,000 and the company have to repay a bank loan of $50,000. In overall company will face a loss of $105,000. The liquidation value is much higher than the cost of starting a new business. The main assets of the company include inventory which is valued at $135,000 and is expected to be sold at $100,000. It means that inventory will lose $35,000 of its worth. Moreover, the remaining book value of fixed assets is$20,000 in accounting record and $12,000 in tax record. In addition, company holds a bank debt worth $50,000, which was a secured loan by inventory. Therefore, the loss of closing the existing business holds significant importance for Jane Burns and Carl Foster.

THINGS THAT COULD GO WRONG:

Jane Burns and Carl Foster are switching their business of computer store to computer repair as they are facing a lot of competition in computer store business and are unable to make profits. The management expects that new business will be less competitive and easy to make profits. However, the new repair business may also face many problems and issues. And many things can go wrong which will decrease the expectations and value of the new business. Following things can be expected to go wrong:

The initial cost or the cost of starting a new business may be incurred.
The cost of revenue can be increased by an increase in parts’ cost, either by the tax imposed or an increase in supplier’s price.
Labor cost and salaries can be increased if the technicians demand more salary than expected.
The rent of a store in industrial area may increase, or the tax imposed on it may increase.
Increase in the cost of inventory and equipment either by increase in supplier’s price or increase in tax of special inventories and special equipment.
Finally, increase in tax terms will decrease the net profit of the new business.

SWITCH FROM RETAIL BUSINESS TO COMPUTER REPAIR:

It is recommended for Burns and Foster to switch from retail computer business to computer repair business. As in retail business, they were hardly able to achieve break even situation and were not earning profit. However, in the repair business, in accordance with the expected sales and expected costs, company is able to generate net income in the first year. In addition, the net income and cash flows are expected to increase year by year.

As the total no. of hours of working are not increasing from the 4^th year, the revenue is also stagnant as well as cash flow is also constant. Therefore, owners should make some strategies to increase there venue from previous year and decrease the cost incurred, which will ultimately effect net income and cash flows. The strategies must include marketing strategies to win from competitors and are not threatened by them again in the new business. Also, to decrease cost, newly operated business should make concessions from the supplier. In addition, to increase customers, company should increase number of technicians, as well as customization will attract the new customers.

To conclude, it is to be said that Burns and Foster should focus to start their new business, and to enhance their business by making strategies to make new customers and to get growth in the future..................

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