Want Beverages is a beverage company based in Burlington, Ontario owned by Bill and Angela Moffat. Even though the company owners could clearly picture where they want their company to be in the next few years, they are not sure of the means of making it get there. Strengths are those attributes that will enable the firm to increase its sales to a level that will ensure success in achieving its long-term goals. The firm operates in a dynamic industry, which requires it to position itself to achieve a competitive edge over other competitors (Fredrick and Gary, 2011).
The Moffats have represented various shoe and clothing companies in Canada. The companies that they represented sold footwear and clothing lines targeting action sports market. This has given the entrepreneurs the chance to get valuable knowledge and experience on the needs of this market segment (Timmons, et al., 2010). The entrepreneurs have a strong relationship with several retailers serving this market segment across Ontario. The Moffats have used their knowledge and experience in this market to launch their new company, which sells energy drinks targeted to a specific market in contrast to other energy drink company that serve a wide market segment.
The Moffats have a strong relationship with employees working in the retail outlets who promote their beverages. The company also boasts of a strong national distribution network through the West 49, which is the largest action sports retail chain in Canada. There is growing popularity of energy mixed drinks mixed with alcohol in busy bars. This has rendered bars an important distribution channel for Want’s products. According to Bill, the success in bars is attributed to the good relationship with bar staff, unique flavor, and lower prices they offer in comparison to other energy drinks. Want’s energy alcohol serves an alternative customers asking for Red Bull and Vodka. The company is able to produce its products in batches through contracted manufacturers. The company targets a market that had only been slightly targeted by other beverage firms, most of which are based in the US. The company also ‘gives back’ to the society, something that other players in the industry does not practice.
The business environment of the industry requires that the entrepreneurs move quickly but this has been hindered by the lack of resources, both money and people. Personal savings and some lines of credit currently finance the firm but they still lack secure source of finance. The firm lacks adequate personnel to serve as sales personnel for their new established firm. The firm currently does not have a management team or board of directors to monitor and direct its operations from a professional perspective. The entrepreneurs currently depend on their personal savings to pay for the firm’s expenses that are currently above the sales revenue. Even though bank loans offers the best source of financing, the partners lack enough assets to act as collateral when requesting for loan from banks. The firm has not been able to stage its own manufacturing plant and depends on contracted manufacturers to produce products. Acquiring fridges for merchandising the firm’s products is a problem to the business since they have to sell some of the merchandise before they are able to meet the expenses. The business does not have a business plan or intellectual property that it can use to get additional finance to finance its operations and expansion.
Goals for Want Beverages
The goals of the company include increasing the sales volume in order to ensure success in the future. The company aims to provide choices that consumers want in variety, quality and health at affordable prices. The goal of Moffats is “to have Want become a strong, profitable business that could support them and their families without the need to depend on Spellbound.” The entrepreneurs set out this goal after realizing that most of the decisions made by the companies that they represented only acted for the good of these manufacturers. After realizing that the target market that for Spellbound was youth, mainly action sports lovers, Bill and Angela saw an opportunity of coming up with a beverage brand that could appeal to this market segment. Their dream was to develop an outstanding brand for the North American market. The partners also had the dream of giving back to the society, something that existing soft beverage manufacturers in Canada never thought of.
How to compete with competitors such as Red Bull
Bill and Angela are able to go after competitors like Red Bull. There is growing popularity of energy drinks mixed with alcohol, especially vodka, something that other competitors such as Red Bull have not considered venturing into. This makes the company’s brand more popular in bars where customers are traditionally accustomed to getting both products separately. In order to compete with established brands, the company can develop a strong relationship with bar staff who in turn recommends Want’s energy beverages to their customers. Offering lower prices compared to other energy drinks available in the market is another option that Want can use to penetrate the market and compete with established energy beverages such as Red Bull. Unlike established brands such as Red Bull, which do not have defined market segment, Want has a specific market for its beverages and this gives it a competitive edge and popularity among the given segment (Weygandt, 2009). This market segment has only been slightly targeted by other beverage companies, which puts Want in a better position to rip a large market share in Canada. Another important aspect is that the company has a social responsibility and donates 15 percent of revenue per bottle to the community. This serves as a promotion strategy that gives it a strong ground to compete with established energy beverage manufacturers.
Evaluation of financial situation
Measures for evaluating financial information reduce the amount of financial information into a more convenient form of analysis (Hilton, 2010). However, no single measure is sufficient for evaluating financial performance of a business. Financial measures are useful in making managerial decisions in order to come up with solutions to financial problems of a firm. The overall position and performance of Want Beverages will be evaluated based on a set of measures including solvency, liquidity, profitability, financial efficiency, and repayment capacity (Jiambalvo, et al., 2009).
This is a measure of financial strength.
Current ratio = total current assets/total liabilities
=21,929.14/70,238.90 = 0.312
This is a measure of a firm’s liquidity
Quick ratio = (current assets – inventory)/ current liabilities
The value of working capital should be a positive value as it is used by lenders to evaluate ability of a company to weather hard times.
Working capital = total current assets – total current liabilities
= 21,929.14 - 70,238.90 = -48309.86
This an indication of a firm’s solvency. It is a measure on how a firm is dependent of borrowings as compared to owners’ equity.
Dept/Worth ratio = total liabilities/net worth
Income statement ratio analysis
Gross margin ratio = gross profit/net sales
Return on assets (ROA)
= net income/ average total assets
Return on equity (ROE)
= net income/average owners’ equity
= net income/ sales
Evaluation of the company’s financial situation shows that the financial situation of the company is not favorable. The company does not have sufficient assets to enable it secure bank loan. Securing financing from banks would increase the company’s breakeven point. The firm’s expenses are still above the sales revenues and this lack of cash flow is limiting their growth opportunities. The firm has a weak liquidity ratio, which means that it lacks adequate resources to secure bank loans to expand its business operation. The firm has a negative value for working capital, which makes it hard for lenders to consider lending funds to the firm. The return on equity is not favorable and this might compromise the ability of equity investors to consider investing in the firm. Even though financing the business through bank loans is an option, it could however extend the break-even point. It was however difficult to the value of the firm since it is dependent on future activities.
My recommendation to Want Beverages is for the owners to major on their strengths in order to better penetrate the market with their new products and services. The issue of limited resources, both financial and personnel can be addressed through options such as soliciting loans from financial institutions such as banks. The owners can also get additional capital from equity investors interested in investing in the company. The best source of finance to the firm would be bank loans but the problem with this option is that bank loan interest would extend the break-even point. The entrepreneurs still depend on personal saving to pay their expenses and this makes it difficult to acquire additional staff. Moffats can consider hiring employees such as sales representatives on part-time basis in order to ensure that they do no part with much money.
Timmons, J., Spinelli, S., and Ensign, P. (2010). New venture creation: entrepreneurship for the 21st century . Ontario: McGraw Hill.
Hilton, R.W. (2010). Managerial accounting. New York: McGraw-Hill Companies, Incorporated.
Jiambalvo, J. (2009). Managerial accounting. New Jersey: John Wiley & Sons.
Weygandt, J., Kimmel, P., and Kieso, D. (2009). Managerial accounting: tools for business decision making, 5th Ed. New York: John Wiley & Sons
Fredrick D. C. and Gary K. M. (2011). International Accounting. Upper Saddle River, New Jersey: Prentice Hall.