It is very important for any company to continuously expand its product range for the development of the company. Development of new product or service requires a detailed research about the company’s capacity to manage the new product, market scope and expectations and product planning. In the following study, the management of TMH limited is concerned with the development of new product that is, manufacturing of forklift and other associated equipments. The study focuses on the research and development of budget for the new product. The new service includes sale of forklifts and after sale service relating to the equipments sold.
Part A Research showing preparation of Revenue, Expenditure and Capital Investment Proposals
TMH ltd is one of the most recognized companies in equipment industry. It provides specialized services relating to after sales services in this industry. It has a wide range of products and services such as, selling and managing the materials after sales, splicing and belting. The management of TMH limited had been thinking about introducing a new service, which is manufacturing forklifts. In addition to this new product, the company is also concerned about manufacturing manual equipments for lifting. This new product will help the company in the production and supply of filling and conveying of powders and granules. It will also help the company to provide specialized services in manufacture and sale of bulk bag weighing.
The objective of the company is to expand its product range and provide full-fledged services to the customer's. The intention of the company is not just to sell the equipments but also to provide after sales services to the customer's. The after sales services include managing and handling the equipments for the customer. This part of the study focuses on the development of investment proposals relating to revenue, expenditure and capital expenditure for the new product and service. The startup capital requirement for developing the new service is estimated at $33.20 million approximately. The company is concerned about financing the major part of this capital requirement through debt financing.
Comprehensive Cash Budget
The projected profit and loss of the company after considering the development of new product and service is as follows:
The capital expenditure budget showing all the one-time costs to the company are as follows:
The calculations as shown above represent the Revenue, Expenditure and Capital investment proposals. Thus, the initial research regarding the development of budget for the new product and service is prepared. This initial research will help in the second phase of the project, which is Budget development.
Part B Development of Budgets and Plan
Budget development requires a lot of research and financial planning. This report includes all costs associated with the development of new product or services for the company. A company prepares budget after analyzing the market and product research, opportunities and competition in the market, potential customer's and the expectations of the market. Before developing budget, the company needs to consider and analyse various costs such as, allocation cost, facilities and administrative cost, materials and labor required for the project, subcontractor cost and fees charged by consultants.
Figure 1: Budget Development
From the above Budget development graph, all the necessary costs required for budget are shown.
Project Development Budget
The above budget shows all the associated costs in detail. The cost with major funds requirements are Materials and services costs and facilities and administration cost. Subcontractor and consulting charges include consulting fees charged by the professionals such as, lawyer fees, accountant fees and broking charges. It is the responsibility of the top-level management of TMH limited to prepare a proper plan according to the Budget prepared above. This plan must also be implemented as planned in order to develop the new product and service successfully. The management, in order to make a proper budget plan, should proceed as follows:
Discussing the plan with stakeholders: The management, before finalizing any budget plan, must consult with the stakeholders. This will help the management to consider the opinion of stakeholders. Discussing key components of the project with the stakeholders will help the company to get the necessary support for the project. It is very important for the stakeholders to be familiar with the contents of the plan.
Setting roles and responsibilities: The management needs to define the roles and responsibilities of the work personnel's. Various people are responsible for proper functioning of the project such as, project sponsor’s responsibility is to fund the and approve the project, project manager will be liable to delegate the authority, execute and manage the plan and project team’s responsibility is to create the end product.
Preparing schedules and managing costs: The management must draw the schedules for the project. It includes segregating the plan in indifferent small phases and determining the completion date for each phase. It is also the responsibility of the management to see that the costs do not exceed the budget.
Ultimately, the management should see that the resources required are readily available to the project team.
Part C Risk analysis, Financial management and Communication
On the basis of the calculations done in part A and the budget developed in part B, the company should analyse the risk bearing capacity of the project. The management should identify all the possible risks that may poses a threat to the company and measures must be taken to minimize such risks. The management, in order to analyse the risks, should proceed as follows:
The management of TMH limited should prepare plans for managing risks. In this task, the company will determine how it will perform the activity of risk management in this project.
In the 2nd phase of risk analysis, the company should identify the specific risks, which can affect the new product and service most. In order to determine those specific risks, the management should start documenting the existing risks first. With the help of this, the management will find the source of the risk and measures can be taken to eliminate the risk.
After identifying the possible risks, the management should perform the qualitative risk analysis. In this phase, the management should prioritize risks on the basis of the probability of their occurrence and impact. This will help the management to focus on high priority risks, so that proper steps can be taken to handle the risks.
The other side of qualitative risk analysis is quantitative risk analysis. In this task, the management will be determining numerically, the effect of identified risks on overall project. This type of analysis helps in minimizing the uncertainty in the project and helps in making decision.
The last step in the risk analysis is planning risk responses and risk control. Planning risk responses will help the company to identify opportunities and minimize threats. Controlling risk will help the company to keep a track of identified risks and evaluating those risks.
After performing the risk analysis of this project, the company should analyze the financial position of the company. Financial management helps in handling the resources properly and achieving the objectives on the basis of planning, financial reporting and physical performance of the project. All the aspects of financial management of a project can be understood with help of following diagram:
Figure 2: Financial Management
Hence, from the above diagram, all the aspects of financial management can be observed. The aspects are financial accounting (profit and loss account, cash flow statement, balance sheet and explanatory notes), revenue management (managing sales and other income), supplier management (managing credit details), resource management (managing the resources such as finance and personnel), cash management (managing the cash summary) and spend management.
The company is also responsible for establishing a sound communication system for the project. A proper hierarchy needs to be maintained for proper flow of information within the organization. Any obstacle in communication process will hamper the performance of the project.
Assessment 2 Analysis of company’s financial position and performance
The financial statements depict the true and fair view of the company’s financial position. Financial statements consist of Profit and loss Account, Balance sheet, Cash flow statement and Explanatory Notes. The company’s financial position can be evaluated based on the calculations done in the attached Excel file. In comparison to the last year balance sheet, this year balance sheet shows a significant rise in the long-term borrowings. The increased long-term borrowings show that the company has taken a new loan for developing the new product and services. This increased loan will ultimately increase the financial obligation (Interest cost) of the company. This increase in the debt financing of the project will give the equity holders a sense of uncertainty regarding the risk policy of the company and this will increase the expectation of the shareholders. In order to avoid this situation and maintain diplomacy between the equity and debt financing, the management should maintain balance.
Income statement: It is the profit and loss statement of the company. It determines how much profit a company earns during a period. From the above calculations, it can be understood that the company will earn a profit of $2780000 if it start the new service. This shows that the company will be in a position to make modifications in the existing product.
Balance sheet: the company in terms of its Assets and Liabilities uses this. The Balance sheet is one of the main sources from where; the stakeholders can determine how much debt a company against the assets of the company. The Balance sheet of TMH limited clearly shows that there has been a significant rise in the value of long-term liabilities. The reason behind this activity is the company’s will to finance the development of new product and service through debt financing.
Cash flow statement: This statement depicts the cash summary of the company with the help of cash inflow and cash outflow during a period. From the cash budget of the company as shown in the attached file, it can be understood that the company has enough cash reserve to execute the daily operations of the company. It shows that the company is in a position to maintain sufficient cash for new product and service.
Explanatory notes: This is nothing but a footnote to the financial statements. These are the additional information is which are left out from the main financial statements.
Assessment 3 Evaluation of Financial Software programs
Financial management software is one of the major tools to manage and understand the functionality of the business. It covers all the corners of the business from maintaining accounts to project management. With the help of this software, the company can develop strategic planning for the business.
The management of TMH limited has identified financial software for the new product and service. The company will evaluate software based on their merits and demerits and based on this evaluation, select software for its new product and service. The software identified by the company is Netsuite, Multiview and Cougar Mountain software.
It is financial management system software for managing business that includes applications for various services such as, financial accounting and reporting, payment, billing and order management and supply chain and stock management. It is a full-fledged package suitable for wide range of industries. The price of this software varies with the change in the package collection. The licensing price of this software starts with $1011 per month with general user license. The company may accept this software for the new product and service because it matches the specific requirements of the company. It offers a complete package at an affordable price. This software is easily accessible from any other device such as, mobile and laptop. The only disadvantage of this software is that is cheaper in price but the implementation cost of this software is very high.
Financial management software offers services like Enterprise Resource Planning. The pricing of this software is dynamic as it is based on the number of users. It is the best software for the organizations, which has a wide range of products and services. This software is easy to use and is user-friendly. However, sometimes it can be cumbersome and it is not easy to make modifications in this software when needed. The price of this software starts with $1299 per month. This software is compatible with the requirements of the company and the implementation cost is cheaper than the Netsuite.
Cougar Mountain software
This is one of the most used software for manufacturing organizations. The software works under the flagship product named as Denali. It is majorly used in manufacturing and public service organizations. It is best suited for the TMH limited as it fits the budget perfectly and has the facility of multi-level pricing for inventory. However, there are some irregularities with this software such as, it is sometimes hard to maintain this software during mixed and complex environment. The price of this software starts with $1499 per month.
From the above analysis and calculations, it can be concluded that the management of TMH limited should start the manufacturing of new product. The financial statements of the company also show a positive response for the project. However, it is also recommended that the company should seek alternative source of finance for the project. If the company finances the major portion of project from debt portion then it will lead to the increase in the interest cost of the company.