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RUNNING HEAD: Managing Growth Simulation

Managing Growth Simulation


FIN/571

Managing Growth Simulation

Managing Growth Simulation


Introduction
The complete course has reveled us the great idea to influence our trends and
intelligence while analyzing the entire details of Sunflower Nutraceuticals (SNC) company
followed with all the decisions of the company which tends to increase their working capital and
maximizing the overall organizational growth potentially with respect to time, as we have
figured out the data and change in numbers below which reflects the growth annually. Moreover
in addition to various details of the SNC firm we have also examined various decisions which
took place in each of the phase of SNCs simulation which has an estimated values to figure out
the results, secondly the paper also describes how SNCs decisions are influenced with respect to
their working capital followed with the final step of evaluating the general affects associated
with the limited access of financial mix.
Sunflower Nutraceuticals (SNC) Background
No wonder SNC is a privately owned Nutraceuticals company , more over one can say it
is a wide distributor which provides all the vital dietary supplements such as herbs for womens,
vitamins, and minerals for all the consumers (mainly womens), distributors and retailers.
(Harvard Business School Publishing, 2012). Once the business was initiated after 2006, SNC
expanded their operations and came up with various retail outlets in the nutraceutical industry
and moreover has been successful while introducing their own brands of sports drinks, vitamins
for teenagers, metabolism- boosting powders, etc and various other products from a same
product line which enable to enhance the metabolism system of humans.

Managing Growth Simulation

Although being potential to grow as one of the major nutraceutical distributors in the,
they are still struggling to break even and one more than one occasion have been forced to
exceed the companys credit line ($1,00,000) to finance their payroll and other operational needs.
Because of their somewhat restrictive financing options, they are only able to use a small
percentage (approx. 10%) to evaluate and invest in new business expansion which resembles
great opportunities in other retail markets across the globe.
Phase 1 of SNCs Simulation (Years 2013-2015)
During the initial phase of the simulation, they presented four major opportunities which
could be helpful for their company to maximize their growth, those opportunities includesI. Discontinuing their Poorer Selling Nutraceutical Products since they have
more than 100 products, some of those products can be dropped off SNCs
inventory because they are outdated. Reducing or discounting those items will
allow SNC to a) reduce its DSI to approximately 3 months, b) cut its EBIT by
50k approximately, c) drop sales to 1mm, and d) create more inventory space
for the popular products. Doing this will rationalize the SNCs SKU count.
II. Leveraging their Supplier Discount SNC is considering an offer to add Atlantic
Wellness (a large successful food chain) to their nutraceutical product line. The
company considered and accepted the Atlantic Wellness contract as it allows
them to increase company sales almost doubled for 2mm. In addition to their
contract offer with Atlantic Wellness, SNC also considered the acceptance of
Ayurveda Naturals with the contract offer which was favorable to SNC as it
payment terms reflected a net gain of approximately 50. They could have

Managing Growth Simulation

lower its AP if it was related to pay of Ayurveda Naturals within a month and
that payment can rise a discount of almost 2% on some of their raw materials.
III. Acquiring a New Client SNC acquired a new client by acquiring the services of
health food giant Atlantic Wellness to their nutraceutical products line. This
decision increased SNCs EBIT by approximately 200,000 and thus their sales
figures by 4mm. Although SNCs sales and EBIT figures increased, their net
working capital and profit margins will remain at current figures.
Additionally, acquiring Atlantic Wellness as a client will help increase SNCs sales
significantly, but those increase sales does not come without a cost as the increase sales will
come at the sacrifice of inventory and accounts receivable. Sacrificing inventory and accounts
receivable is not a good deal for SNC because of their current cash position as SNC must keep a
minimum of $3 lakh on hand to meet their companys operational needs. However, there is a
positive lining for SNC as the risk of inventory and accounts receivable could be balanced by
negotiating a profitable deal with merchant Ayurveda Natural.
IV. Limiting their Receivable Accounts Since Super Sports Centers account for
20% of SNCs sales figures, those receivable accounts takes the company
approximately 200 days to pay and those 200 days is well above the normal
90-day average. To resolve this issue, SNC could drop Super Sports Centers
and improve their DSO number, but that come at a cost as SNCs sales would
drop $2mm.
Phase 2 of SNCs Simulation (Years 2016-2018)

Managing Growth Simulation

During phase two of the simulation, SNC was presented with three different opportunities
and those opportunities include:
I.

Expansion of SNCs Online Presence Since SNC would like to expand their
operations into new retail markets its company was presented with an opportunity
to partner with Golden Years Nutracueticals so that they could reach a larger,
more diverse consumer base.From 2016-2018, this partnership reduced SNCs
DSO figures because its web sales began to be collected more rapidly from few
days almost 7 to 2 days throughout the duration of 2016-2018. Also SNC also saw
about 10%, increase in their sales from 2016-2018. This was an ideal opportunity
for SNC as it will allow them to increase their sales with having little-to-no effect
on the companys working capital.

II.

Take up Big-Box Contributions SNC established a partnership with sales giant


Mega-Mart, and that decision allowed SNC to see increase in sales of 25%, 10%,
and 5% approximately during 2016-2018. Additionally, this decision dropped
SNCs from about 1%, however, their bills were paidon time causing SNCs DSO
to drop. Beginning with a partnership with Mega-Mart is a good idea. However,
this partnership will drop margins and reduce SNCs EBIT.

III.

Create a Private Label Product SNC has a partnership with Fountain of Youth
Spas, and Fountain of Youth Spas want SNC to develop their own private label
product so that SNC can expand their nutraceutical products line and increase
their sales and consumer base. Doing this would increase SNCs 2016-2018 sales
by 5%, 4%, and 3% approximately. Additionally, it will also increase margin by

Managing Growth Simulation

2% while increasing SNCs DSOs and DSI. This partnership will allow SNC to
increase their EBIT while slightly raising their accounts receivable figures.
Phase 3 of SNCs Simulation (Years 2019-2021)
During phase three of SNCs simulation, there were three opportunities for SNC to
consider, and those opportunities include:
I.

Adapt a Global Expansion PlanSNC acquired a new Latin America client (Viva
Familia), which helped SNC expand their business operations into Latin America.
SNCs partnership with Viva Familia allowed SNC to decrease their DSO for a
couple of days because Viva Familia will cover delivery charges. However, this new
partnership increased the companys DSI by two days, and it also increased SNCs
sales by 2% with margins remaining parallel to current business.

II.

Renegotiate Current Supplier Credit Terms SNC want to renegotiate its credit
terms with other vendors so they used their main vendor Dynasty Enterprises
(located in China) as leverage (suppose SNC needed a 3% discount for payment in
10 days) with other vendors. SNC could use their negotiation tactics with other
vendors because their main vendor, Dynasty Enterprise offered SNC profitable
terms of 2/10 with a net of 30. This reduces SNCs costs of sales by 200k and their
AR by 800k.

III.

Acquire a High-Risk Client Midwest Miracles is a potential high-risk client for


SNC because of Midwest Miracles excessive debt and risky financial situation.
However, acquiring this client will increase the sales of future prospects of SNC
sales by approximately 30% in 2019. Midwest Miracles is a potential risk for SNC

Managing Growth Simulation

as their company has lesser chance of going bankrupt as compared with the
recovery. Other effects of this client, includes a likely increase in DSO by 190 days,
and higher fees with a longer than average invoice pay-period.

SNCs Final Metrics Results


Final Metrics Results (Figures Reflect 2013-2021) Estimated values:

EBIT (202% Increase): Figure went from $440 to $1,330,

Sales (27% Increase): Figure went from $10k to $12,672

Net Income (412% Increase): Figure went from $156 to $798

Free Cash Flow (124% Increase):

Figure went from $365 to $798

Total Firm Value (56% Increase):

Figure went from $3,248 to $5,082

General Effects of Limited Access to Financing


There are several general effects that limited access to financing can have several effects
on entrepreneurs trying to start or grow his or her businesses. For example, limited access to
financing can lead to 1) higher interest rates on a business loans or credit fees. 2) Force a
business to face a complicated and expensive entry (registration costs, policies, equipment fees,
etc.) and exit procedures(Parrino, Kidwell, & Bates, 2012). C) Limit the amount of growth
(profits, SME, consumer/client base, etc.) a company can have in that new market. D) Make it
more challenging (longer and more expensive process) to implement property and intellectual
rights of privately owned and developed brand products.

Managing Growth Simulation

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Conclusion

Finally while concluding the entire paper would like to say that SNC simulation reflected
us the challenging ways of handling the managing growth and capital of an organization in our
present scenario. Especially it is found in the business market where we can find a company with
limited financial power or take on business partnerships because they cannot support financially
with their credit line or resources as they are more than their estimated budgets. Hence you must
say that really managing a company while handling all the competitors in the market is really a
difficult task to be performed in a best possible way along with the acceptance of all the updated
trends in our community.

Managing Growth Simulation

9
References

Harvard Business Publishing. (2012). Working capital simulation: managing growth.


Retrieved October 28, 2013 from, http://forio.com/simulate/harvard/working-capital/simulation/?
#page=dashboard.
Parrino, R., Kidwell, D. S, & Bates, T. W. (2012). Fundamentals of corporate finance (2nd ed).
Hoboken, NJ: Wiley. Retrieved October 28, 2013 from, FIN/571 Foundations of
Corporate Finance student website at the University of Phoenix (UOPX).