BUSINESS PLAN

 BUSINESS PLAN

Introduction

Durango Manufacturing Company is a medium sized US based public manufacturing company. The company deals in a chain supply of wide varieties of product within US markets and beyond. The paper provides several strategies the Chief Executive of Durango Manufacturing Company can adapt to meet its proposal of increasing its revenues periodically by 10% for the next five years. The above strategies take into account outsourcing of the internal company operations, hiring very knowledgeable, proficient, and competent accounting managers. The paper also analyses Durango’s financial statement by calculating the NPV to evaluate the company’s capital budgeting situation. The article further assesses Durango’s IT controls as well as its internal controls to determine its capability of detecting fraud, as discussed below.

Importance of accounting knowledge

From my accounting and financial management knowledge as the constant to the Chief Executive Officer of Durango Company, I’m strongly confident that accounting and financial management knowledge and experience will be critical to the company’s financial stability over the next five years.  Based on my analysis, I have established that there is a need to strengthen the accounting and economic structure of the Company.  This is evident in the company’s lack of highly competent, trained, and skilled managers within the company. The company does not have established policies on the division of labor as well as segregation of various duties. Besides, there are no clear procedures for delineating company responsibilities; hence, there is a great need for accounting and financial management knowledge and prowess for the success and stability of Durango for the next five years.

A very competent accounting manager or controller is a useful asset for a developing company like Durango. The accounting manager, more often than not, is responsible for all the accounting activities of a company. The company controller manages the company’s financial and cost accounting, taxes, and data analysis (Pathak, & Demiralp, 2019). It is imperative to note that development of the company’s financial reports and matrices rely on the hand of the accountants. Therefore, their accounting knowledge assist the business managers in assessing the past performance of the company. The experience of the accountants also assist managers in determining future performance and direction of the company. The accomplishment of various legal obligations such as compliance with the SOX by the company significantly depends on the proficiency, competencies, and knowledge of the company’s controller.

The knowledgeable financial manager is also very significant, especially for companies seeking economic growth because their proficiencies on cash flow are very incidental in determining the feasibilities and business decisions. Financial managers deal with the company’s financial expenditure, procurement, and custody. Financial managers are also in charge of financial planning, capital expenditure, and cash flow management. Advanced knowledge of monetary policies assists the company managers in assessing the company’s accessibilities to credits and the cost of funds.

Company’s stakeholders

The company’s stakeholders, such as investors, lenders, and employees, imperatively rely on the company’s financial statements and financial ratios to make essential determinations concerning the Durango economic conditions and operational efficiency.   The company’s employees, for example, depending on the information from the financial statements for their better understanding of the company operations and expenditure. Furthermore, the employees use information obtained from financial ratios to increase their level of engagement with the company and how they can use the financial data from the financial statements to improve the company’s performance.

Investors are very key determinants to the growth and development of Durango Company. They own the company. They dearly rely on the company’s financial statements and financial ratios to comprehend their investment performance. The investors, for instance, assess the performance of the business in terms of the return generated from the investment by examining various profitability ratios such as profit margin and return on equity. Lenders, on the one hand, take the necessary steps to ensure the company pays them back their funds.  They use the information obtained from the company’s profits and liquidity ratios to gauge the company’s capabilities and potentials to pay back their loans and interests earned on the investments. Besides, investors rely on the information from the liquidity ratios such as quick ratio and acid test ratio to determine the company’s potential to pay its debtors. Liquidity ratio is the ratio of current assets to current liabilities (Ostrom, & Wilhelmsen, 2019). The general management of Durango public limited company also depends on these pieces of information generated from its financial statement to make very critical determinations within the company. More often than not, critical management decision and significant determination depend on the data from various financial ratios such as profitability, liquidity, and cash flow.

Strategies to increase revenue by 10%

The need for Durango Company to increase its revenue in 5 years requires various strategies to expand its capital expenditures. Different capital budgeting ratios such as Present Net Value and IRR can be used to determine its potentiality in achieving the revenue increment in the next five years.  Based on my financial assessment, Durango Company will require a net present value (NPV) as a capital budgeting ratio to examine its proposal’s profits increment.  NPV necessitate co-operating managers and investors to carry out business transactions that are profitable and have a positive value for the NPV (Yao, & Field, 2019).  Also, the NPV capital budgeting ratio enables the company to ignore projects that non-profitable and have a negative value on the net present worth (Vogel & Benitez, 2019). Net Present Value of the company can be obtained by calculating the net cash flows while discounting the cost of capital purchased.  The initial money is then subtracted from the resulting value to get the net present worth. Net Present Value is obtained on the assumption that the rate of cash return or the rate at which the cash flow was discounted will be similar to the standard of cash flows initially invested by the company.  There are several characteristics that makes NPV capital budgeting ratio to be the best candidate to realize its revenue increment in the next five years. Net Present Value takes into determines the company’s profitability, facilitates risk adjustment, and factor in all cash flows. NPV maximizes wealth, alters the time value for money while making realistic scenarios over the reinvestment of the average cash inflow.

Costing techniques to improve Durango’s operational efficiency

The production department within the Durango Company plays roles imperatively in enhancing its operational efficiency. Implementation of the different cost systems, therefore, will ensure an improvement in the company’s operational efficiency. Implementation of such cost help in the accurate determination of various expenses such as material, labor, and overhead expenses.

Durango manufacturing company being a mid-sized generally focusing on custom cabinets, job order costing would be more appropriate for all the production departments are compared to process costing.  This is because job order technique takes into account the actual material and labor expenses for a particular job. Since Durango manufacturing company majorly specializes on the custom cabinet as opposed to mass production, job costing will be more productive since it is possible for the departmental construction managers to carry overhead to job allocation at a pre-determined rate.   Moreover, corporate managers are capable of determining the possibility of future profits from various jobs by calculating the profit earned on specific tasks.  Most importantly, managers can determine cost-reduction, efficiency as well as company productivity through keeping track of performance from different teams and individuals.

Process cost systems are employed by companies and corporations undertaking large production of similar products.  More often than not, companies producing a large volumes of products carry out their products as an incessant practice (Lee & Sawyer, 2019). Process costing is, therefore, the best option for such company since it gives summarized products associated costs over some time as oppose to assigning and allocating costs to a specific product. Based on the above features of the process costing technique, Durango firm should consider implementing a process cost system at the manufacturing department to improve its operational efficiency. Tracking of various costs such as wages and salaries for the employees is essential in company because these are very high costs with cooperation. Activity-based costing technique is a good option at tracking such expenses. It is therefore recommended that Durango Manufacture Company should consider the implementation of activity-based costing technique to help in monitoring such costs.  Activity based costing system is considered very useful for the salaries and wages department as it will give the company control over all overhead expenditure.

Recommendations for outsourcing

Every company must always decide on whether to consider internal manufacturing or outsource to external vendors.  Accompany would, more often than not, outsource its manufacturing operations when the labor supply form overseas is considered cheaper (Ho, & Bradshaw, 2019).  Durango is, therefore, should consider outsourcing its manufacturing operations since the labor supply is significantly less expensive from overseas as compared to obtain its labor force from United States.  Outsourcing would allow Durango to access a pool of talents. Hiring employees within the United States limits the company acquisition of a large pool of skills, therefore Durango Company should outsource its internal operations to access diversified talent in other parts of the world. Besides, outsourcing would relieve Durango from the burden of hiring more employees into the company.  Based on the above benefits associated with Durango’s outsourcing its internal operation, the company should consider looking for labor outside of the United States.

Prediction on the Durango’s economic and business environment for the next five years 

It is predicted that the economic growth for Durango will initially remain slow for the current year but speed up for the next five years. According to the congressional budget office, the company is likely to exhibit a constant unemployment rate of 7.5% throughout next year. The various economic factors are likely to cause a boom in the economic growth of Durango due to the effects of the current law adjusting the current economy to the tightening fiscal economy.  Congressional Budget office further project that Durango Company is likely to experience an increase in growth rate from 3.4% to 3.6% for the next five years.

Strategies to improve on the opportunities for Durango Company

The CBO further suggests that there will be a steady decline in the effects of housing and financial crisis accompanied by increased availability of credit leading employment, income, consumer spending, and business investment growth. Durango is also expected to experience a steady and gradual improvement in the business and economic environment in the next five years. The anticipated increase in the growth of both commercial and economic situation will increase Durango’s chances of realizing its proposal of increasing its revenue by 10% in the next five years. The economic and business growth will translate into an increase in the demand for Durango’s manufactured products in the United States market. This increase in demand for Durango’s will automatically convert to growth in its revenue of Durango Company for the next five years by 10%.

Fraud assessment with Durango based on a lack of IT controls.

Lack of IT controls within Durango Company creates a crisis in fraud prevention. The use of IT controls requires the support of all stakeholders within the company as well as and favorable ethical environment. It is imperative to note that the Securities and Exchange Commission highly fines companies who don’t supervise their employees against committing fraud.  Durango can, therefore, adopt the following ways to structure its internal IT control to ensure their IT controls are useful in detecting fraud. Durango can employ the use of Checks and balances as an audit approach to restrict control over critical financial transactions. Moreover, Durango should adopt a monthly reconciliation agency of bank accounts as an audit approach to curb fraud. This type of plan takes into the assumption that the reconciler of the bank accounts has no other responsibilities within the company for it to be effective.

Financial misstatement risk assessment in the audit engagement and internal controls.

More often than not, the company’s auditors provide a reasonable basis for assessing the risks materials by performing risk assessment procedures. Usually, factors such as nature of the company and internal controls of a company results in a variety of threats. Also, lack of competency and proficiency in accounting knowledge can leads into risks associated with material misstatement within Durango Company.

Other factors such as failure of internal controls to capture specific information within the business transactions, inappropriate reporting processes can also result in risks of financial misstatements. Different types of auditing procedures can, therefore, be adopted by Durango Company to assess the above risks for mitigation. Risk assessment takes into account both company factors and various external factors.  Some of the risk assessment procedures include finding all the company’s outstanding, understanding all the company’s internal controls, taking into consideration the client’s feedback information, as well as carrying out qualitative and quantitative analysis on the company’s financial data. Other assessment procedures include obtaining pieces of data on the material risks assessment from the auditing committee, holding a discussion with the engagement team to explore various risks of material misstatements.

Nature of the company influences risk assessment procedures based on the size and complexity of the company, the company’s organizational structure, the company’s source of funding, as well as the company’s significant investments such as joint ventures and variables interest entities. Moreover, the size of the company would influence the nature, timing, and extent of the assessment procedures. Durango being a medium-sized firm, requires a limited number of methods for its risk assessment.

Risk of material misstatement more often than not, are affected by specific company performance measures. The performance measures used by the company in monitoring all its internal operations, measures employed by the company’s analyst as well as the rating agencies significantly contribute to the risk of material misstatements.

Understanding the company’s internal controls as well as the financial reporting technique adopted by the company enables the company’s auditors and the engagement team to determine the types of potential misstatement risks to be incurred by the company. Internal controls would also assist in assessing various factors that can influence the material misstatement risks.  Lastly, the auditor should understand the company’s control of the environment. Control of the situation enables the engagement team to determine the operational management style with regards to its policies on internal controls over financial reporting. Understanding the Durango’s control of the environment enables the management team to determine the ethical and integrity of the management on risk management.

Financial analysis.

The capital Budget process relates the time value for the money invested with the company. It expresses the future, present value, and cash flow to determine the capital budgeting situation within the company (Hawton, 2019).

Figure1: Adopted from Durango’s 2018/2019 financial statement.

Based on information from the above financial statement, periodic Present Value from cash flow for Durango Company can be obtained from the formula.

PV = Cash Flow

(1+ discounting rate)

For the year for4, example Present value was obtained as

     $27,286

1+14%

= $194,900

Based on the above PV value, it can be concluded that the Durango 10% annual revenue increment will continue periodically for the next five years. As a result increase in the demand for Durango’s products in the United States market.

Ethical theories for decision-making process

The decision making process is both an art and science that imperatively requires the guidelines of various ethical methods. They include utilitarian moral theory, deontological ethical theory, as well as virtue ethical theories.

Utilitarian ethics work on the theory that the highest good is for the most exceptional people. More often than not, the Utilitarian philosophy is employed when making a decision based on what will benefit many people within the company.  A company adopting such type of approach in making its decisions are usually forced to predict the unforeseen future of their operations.  Deontological, however, works on the basis that every employee within the company should be treated with equal dignity and respect.  The use of this type of theory in making the company’s significant decisions can result in making the best decision with severe consequences.  Virtue, on the one hand, operates on the basis that, virtues and sound ethical practices make competent public relations professionals. Companies relying on such theory to make their decision are likely to encounter a conflict of attributes in the process of decision making. Based on the above analysis, Durango should consider the use of Virtue ethics theory in making decisions to ensure their operations comply with the professional’s code of ethics.

Recommendation approvals.

Conclusion

Based on the outlined advantages and benefits associated with outsourcing of Durango internal operations such as access to a pool of talent labor force, the company should consider obtaining its labor from overseas.  A present positive value of $194,900 received from the financial returns justifies Durango’s potentiality in increasing its revenue by 10% for the next five years. The research paper satisfactorily explored several strategies, such as the use of checks and balance and agency reconciliation Durango Company can apply in fraud management.

References

Hawton, K. (2019). Risk assessment scales to predict risk of hospital treated repeat self-harm: A cost-effectiveness modelling analysis.

Ho, K., & Bradshaw, N. (2019). A conserved regulatory switch controls phosphatase activity and specificity. bioRxiv, 784843.

Lee, L., & Sawyer, R. (2019). IT General Controls Testing: Assessing the Effectiveness of User Access Management. AIS Educator Journal, 14(1), 15-34.

Ostrom, L. T., & Wilhelmsen, C. A. (2019). Risk assessment: tools, techniques, and their applications. John Wiley & Sons.

Pathak, A. J., & Demiralp, E. (2019). U.S. Patent Application No. 10/262,423.

Vogel, R. A., & Benitez, R. M. (2019). Noninvasive assessment of cardiovascular risk: from Framingham to the future. Reviews in cardiovascular medicine, 1(1), 34-42.

Yao, X., & Field, G. D. (2019). Inhibition controls receptive field size, sensitivity, and response polarity of direction selective ganglion cells near the threshold of vision. bioRxiv, 683961.