Introduction Guillermo Navallez has been in the furniture making business for several years in Sonora, Mexico. This once quiet town was notorious for vacationing and has a great supply of timber for the furniture that Guillermo produces. Consumers pay a higher premium for the well-crafted furniture and his labor is inexpensive. In Guillermo’s Furniture Store scenario, there are various financial concepts that are found.
Location
For 13 years Guillermo’s furniture business was at a prime location partially due to materials being available, after the competition had moved in creating numerous changes, the location has declined. In one year from 12/31/09 to 12/31/10 Guillermo’s assets, liabilities and equity, and overall total liabilities increased 1.12% and total liabilities & equity also increased 1% despite the competitive changes. Although the business shows an increase, it is not large enough to maintain a steady profit.
Operating Expenses For years Guillermo has used local timber that delivers high quality furniture. His products were priced higher because of the craftsmanship and well-known quality. He had developed a variance analysis that displays his budget for various expenses including materials. All total operating expenses (excluding supplies) exceeded the budgeted amount by 1.1%, while his overall revenue had not met his budgeted amount which could be due to competitive products that are moving in. For example, because of budgeted net revenue of $1,733,562, having mid-grade avoided any Var-Flex amount created an overall Var-Gross of 36,577. Guillermo could connect with companies in other countries to expand his business. If he considers coordinating with his current distributor network and become a representative for another manufacturer, it may increase his revenue as well. Cost of goods could be reduced as well which would avoid any negative amounts from what is budgeted: $480,980 to $491,176 actual spent; a variance of $10,196. While the leading competition has increased their profits by adding new technology and consolidating into larger organizations, Guillermo has been an independent distributor for years and does not see his company merging with another one with a risk of losing the quality name of his product, he looks at other alternatives for remaining with the competitors at reasonable all around cost.
Competition & Technology For years, the only local business was Guillermo’s furniture store, until an overseas competitor came into the furniture market introducing a technology allowing precise specifications to their furniture at a much lower cost. More retailers began moving into the area creating an increase to the cost of labor, more people and more jobs while Guillermo’s profit margins began to decrease due to reduced prices and increase cost. Foreign competitors’ using automated technology has allowed production to increase with a reduction in labor time and cost. Implementing such features for Guillermo’s business may reduce his labor cost per unit which he has budgeted for $987,300; however exceed that amount with $1,077,222. By investing in higher technology, Guillermo could increase sales growth, reduce labor cost and be ready for rising inflation.
Patents
An advantage that Guillermo has that it doesn’t appear his competitors have is his patented process for coating furniture. The multi process used increases the value to his furniture. Options such as this could increase value and add to his comparative advantage as well as add to his Net Revenue.
Conclusion
Guillermo Navallez has developed and maintained a successful furniture business. Because of a changing economy, increasing technology and streamline efforts, his North American furniture manufacturing company has encountered a need for changes as well to keep up with the needs of customers. Having a decision made to renovate a business as a way to keep up with the changing times can reveal things about Guillermo’s situation and his belief in what the prospective changes can bring. He has the experience, the product ideas and no how to make changes occur in a positive, changing, competitive market.

Reference
Emery, Douglas; Finnerty, John; Stowe, John (2007). Corporate Financial Management, Third Edition. Chapter 2: The Financial Environment: Concepts and Principles. Prentice Hall, Inc. A Pearson Education Company
University of Phoenix. (2011) Guillermo Furniture Store Data. Retrieved from https://portal.phoenix.edu/classroom/coursematerials/fin_571/20111213/