Assignment
As the "leading supplier of exclusive, high-end audio and video electronics for homes, businesses, educational institutions, and other organizations in greater Chicagoland," The Little Guys has built an enviable reputation since its founding in 1994. The Little Guys sells and installs top-brand home audio and theater equipment and does it well. The company prides itself on its highly knowledgeable salespeople and outstanding customer service, and these have helped it survive strong competition from both "big guys" like the Best Buy electronics chain, which has a store not far away, and economic downturns that have cut consumers' buying power. "We have the best employees," says the company's Web site, and "how we treat our customers makes us great." David Wexler, the store's co-owner, describes how one of the firm's award-winning salespeople deals with his customers, for instance: "If a guy comes in to buy a $50 DVD player, Ed treats him the same as the guy who's spending $500,000 with us. I think that's what keeps people coming back over and over and over. He fights for them.
Frankly, sometimes he fights too much for them. But he's their advocate, and they know it." In response to recession-slowed sales, the company was recently forced to lay some people off and has reorganized departments from advertising to payroll (the latter is a major and complex expense for The Little Guys because its salespeople earn base pay plus a percentage of their sales). In another costcutting move, the company also recently moved to a new location not far from its original store, and it's keeping close track of its cash flows in and out. Salespeople are careful about customers' change orders, too, which often cost the company money. Now, as the economy begins to improve and consumers begin to spend more on electronics, these same cost-cutting measures will help improve the firm's bottom-line profit amount.
With the help of QuickBooks accounting software and a professional accountant who visits regularly, David Wexler and co-owner Evie Wexler have deepened their knowledge of accounting and finance as the business has grown. In the beginning, for instance, they checked sales figures every day, but David quickly realized that this practice created instant information overload. Now he looks at the numbers about every week or ten days, comparing each set with past results, and the accountant comes in at least once each quarter to help with more complex issues like depreciation of assets and equipment for tax purposes. Taxes are a big concern. As Evie Wexler points out, sometimes the firm has to make a special push to sell off inventory in order to generate extra cash flow when taxes are due, or when it wants to purchase new merchandise that customers are asking for and that will therefore sell faster. Keeping warehoused inventory low saves money, too.
One reason cash flow can be slow is that customers often negotiate prices and repayment terms at The Little Guys, so that an expensive system might not only be sold at a discount, but the customer may also be given extra time to pay. That certainly helps make customers happy, but if it means the company is paying its own suppliers on time while customers lag in their payments, cash can get tight. As David explains, that's partly why The Little Guys limits the number of brands it sells and works with only a few suppliers. Establishing good relationships with these suppliers, largely by ordering regularly and paying on time, allows the company to ask them for special discounts or improved payment terms-even when other retailers aren't getting them-and find yet another way to earn a little more profit on the same volume of sales.6
Questions
1. Do you think a fairly small company like The Little Guys still needs a professional accountant after its owners have had so much experience running a successful business? Why or why not?
2. Do you think The Little Guys is doing a good job of using information to manage the business? If so, why, and if not, how can the company improve this function?
3. What are some of the factors that contribute to The Little Guys' cash-flow problems? How might the owners better manage its cash flow?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.