Managing Growth Assignment

        When the thought arise about being an entrepreneur, one has to think about making the right business decision. During this week, we had a chance to view a working capital simulation. The results of this learning experience left me to analyze what would be the best investments to make in regards to growth and cash-flow improvement opportunities. In this paper, I will include the financial details of Sunflower Nutraceuticals Company (SNC) and the outcome of each of my decision within three phases over a nine year period. Also I will describe which decisions will produce best outcome in regards to the SNC’s working capital.

Sunflower Nutraceuticals

        In 2006 Sunflower Nutraceuticals was founded in Miami, Florida by CEO Jane Cheng. SNC is a privately owned company that started off producing dietary supplements for woman. As time went by, Cheng noticed an opportunity to make more profits. She then expanded the business within new retail outlets and started to also produce teenager vitamins, woman sport drinks, and metabolism boosting medication. However, Cheng was not sure how she was going to come up with the capital to pay the overhead as her line of credit was already overdrawn many times. The current state for sales of this business is breaking even with total revenue at $10 million. SNC’s $3.2 million credit limit is based from inventory and account receivable. This sets the credit limit at 8%, while SNC uses 12% cost of capital to evaluate possible investment opportunities. According to Harvard Business School Publishing “In 2010, the nutraceutical market was estimated to be worth $126.6 billion, and it is forecasted to grow 4.9% compounded annually. By 2017, it is estimated to be at 180.1 billion due to increase in the elderly population and increase in chronic diseases.

Phase 1

        According from the Harvard Business simulation, in 2013 to 2105 the company documented four opportunities that could have led to maximizing the company’s growth. These opportunities were to Leverage supplier discount, tighten account receivable, get rid of products that are not selling, and to pick up new customers. These are all good attempts to maximize profits but I don’t think that investing more in an attempt to pick up new customers will be the direction to head in. Although this process will increase sales, the investments made will not give SNC the chance to free up cash for other profitable investments. I will accept the leverage supplier discount process because there was an increase in accounts receivable and the inventory balance. As shown there was a decrease in cash flow but this was because of an offset in which there was an increase in EBIT due to the negotiations of a new contract with Ayurveda Naturals. The tighten accounts receivables process showed improvements by freeing up cash. By getting rid of products that are not selling, reduced the amount of SKU’s that the company will carry. The cash that was tied up in inventory decreased because of after affects in restructuring the SKU accounts. Total value created in phase one based on the decisions made was 721k, equity value 1,425k (Harvard Business School Publishing 2014).