Valuation of Small Business Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Valuation of Small Business Case Solution

Question 03

After analyzing profit and loss statements of the company, we can say that the company needs to control its expenses because the revenue and cost of goods sold are increasing with almost same percentage but expenses are increasing at an excessive rate. Such excessive increase in expenses will reduce their net income over time and even result in a negative income. If owner of the company successfully controls its expenses then there is a high probability that the owner will earn minimum income that will at least recover his current salary requirements or even raise its income equivalent to inflation rate. As we know that the company is involved in retailing services, we recommend that the owner should employ just in time (JIT) inventory method. Just in time system reduces most of the expenses for the company, resulting in ultimate increase in its net income. Some qualities of JIT are mentioned as below:

It holds small number of inventories at stores, which reduces the cost of warehouses, cost of handling of inventories, cost of supervision of inventory and cost of moving of goods from the place of warehouse to stores.
It increases the idle capacity of stores, which can be used in another project or even can be rent out to earn income from rentals.
It will reduces the inventory damages. In case of any damage the supplier will be responsible because we are not storing any inventory in our places.
It will help to avoid the product obsolesce expense. Because in JIT system, we are not storing any products in advance.

He can maximize his company’s value by applying the strategies like product development, market penetration and market development to increase the revenue for the company which will ultimately increase the value and maximize its worth.

It can penetrate its market by using the pushing strategy to its current market with current products, which will increase the sales.

It can use the strategy of product development by introducing the new products in current market like he can start to cell laundry products which can be purchase from its existing supplier of vacuum cleaner, Hooker.

It can use the market development strategy by introducing the current products into the new market. It can be done by introducing the online sales of existing products into different regions outside of Midwest.

Question 04

The things that the owner of the business should have considered, was the exit strategy which is essential in case the business owner decides to shut his business in time or considers to sell it at a profitable value. The owner of the business should have asked for the alternate course of action in case he decides to dispose of his business.

Another question the client should have asked is to invest his money which would be collected from selling the business, since the client is just nearer to his retirement, he should worry about how to get proceeds after his retirement needed for his desired lifestyle. He should be concerned about investing for retirement in forthcoming years.

Recommendations

The best possible solution recommended to the client is to sell the business. The crudest approximation of the worth of business would be more in case of selling the business as compared to stop the business operations. This exit strategy will help the owner to invest the proceeds from sale of business into fixed assets offered by the bank which will ensure the safest regular payments. But owner also needs to make sure that the return from investment is higher than the inflation rate which is around 2.3% in the Mid West Region. Otherwise, the owner can invest in the safest stocks to ensure returns more than the inflation rate. This way the owner will save his money and earn income over invested money as well..........

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