On The Beach: 2019 Budget Report

This report is a 2019 budget report for the company On The Beach. The report includes an executive summary, a discussion of the company’s expected financial performance, an analysis of the company’s overall expenses, and a breakdown of the company’s product-wise operating profitability. According to the report, the company is expected to generate a net profit of $26412 in 2019, with a net profit margin of 1.11% and a gross margin of 4.14%. The report also identifies areas where the company can reduce expenses to increase profitability. The product-wise operating profitability table shows that only one product, “one piece,” is generating profits for the company.

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On The Beach
2019 Budget Report
Date of Board Meeting
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On The Beach: 2019 Budget
Board Report
Page 2

Budgeted Financial Performance
It is expected that the financial performance of the company in the year 2019 would
be profitable. Budgeting tool has been used by the organization for the purpose of
evaluating the expected financial performance of the company in the year 2019. These
budgets are prepared on the basis of data collected by conducting a different type of
market research and company resource analysis (Wahlen, J., Baginski and Bradshaw,
2014). On the basis of budgets prepared at the starting of the financial year 2019, it is
expected that business operations of the company will generate an overall net profit of
$26412. In addition to that net profit margin of the company would be 1.11 % and
gross margin would be 4.14% (Hatten, 2015).
Overall expenses
Overall expenses of the company are very high which has resulted in a net profit of
1.11%. This portability margin is very low and it is essential that the overall indirect
and direct cost of the company should be reduced in order to increase the overall
profitability of the company. A substantial amount of expenses are incurred by the
company on operating expenses such as utilities, insurance, administration staff
wages, and office expenses. Insurance, administration staff wages and rent are very
essential expenses for the company (Barr and McClellan, 2018). Therefore one option
available with the organization is to reduce the utilities and general office expenses.
General office expenses are 25% of total administration cost which can be considered
as very high. The cost-reducing strategy should be prepared by the company and it
should be applied to expenses that are not very essential for increasing operational
productivity. These cost reducing strategies should not have any impact on the overall
operational capacity of the company as it can have long term negative impact on the
business operations (Schaper et.al, 2014).
Product-wise operating profitability
Statement showing product-wise operational profitability
Particular One Piece Board Shorts Towels Bags
Sales 1250000 913600 78000 117000
(-) Direct
material
424700 577283 70560 980050
(-) Labor
expense
347200 353955 25088 62160
(-) Variable
overhead 37,200.00 37,923.75 2,688.00 6,660.00
(-Fixed
overhead ) 48,902.40 66,471.77 8,833.98 14,591.85
On The Beach: 2019 Budget
Board Report
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Operational
profit 3,91,997.60 -1,22,033.52 -29,169.98 -64,461.85
Table 1: Operating profit by Product
On the basis of this operating profitability table, it can be said that only "one piece"
product sold by the company is making profits. On the other hand all the other three
products are producing losses for the company. It is important for management of the
company to make essential decisions in relation to the three products under
consideration. It is not financially viable for the company to continue this type of
operation as majority of products sold are producing losses. In addition to that, these
three products are taking resources of the company which can be used by management
tool for the production of more “one piece" product which is profitable
(Jindrichovska, 2013). By diverting the resources to profitable segment, management
of the company can increase overall profitability but it is important to consider other
factors while taking such decisions. There are some business situations in which
business organizations have to produce certain kind of product and services according
to the demand of the customer. This type of production is essential for existence in the
market and supporting the primary profitable products. Therefore it is important that
the management of the company should consider all the factors before making any
decisions in relation to discontinuing the loss-making segments (Baños-Caballero,
García-Teruel and Martínez-Solano, 2014). Management can also conduct overall
analysis of the loss-making product in order to identify the main reason behind these 3
loss-making products.
Cash Position
Jan
uar
y
Feb
rua
ry
M
ar
ch
Ap
ril
M
ay
Ju
ne
Ju
ly
Au
gu
st
Sept
emb
er
Oc
tob
er
Nov
emb
er
Dec
emb
er
Opening
Balance
422
50
155
180
24
89
87
38
93
38
52
52
39
59
73
61
62
97
20
65
15
54
6498
35
726
584
844
025
897
070
Total
Cash
Availabl
e
394
380
433
040
49
40
47
59
77
02
65
11
03
68
46
17
71
35
20
74
47
38
8459
67
960
924
107
452
5
115
715
0
Total
Payment
s
239
200
184
053
10
47
09
72
46
3
53
74
2
54
89
6
61
96
6
94
90
4
1193
82
116
899
177
455
278
003
Cash on
Hand
155
180
248
987
38
93
38
52
52
39
59
73
61
62
97
20
65
15
54
64
98
35
7265
84
844
025
897
070
879
147
Above mentioned cash budget of the company clearly states that irrespective of the
low profits made by the company in the financial year 2019, cash position of the
company is very strong (Burns and Dewhurst, 2016). Overall cash available in the
company has been increasing on the monthly basis. This cash budget clearly states
that cash management and collection strategies of the company has been very
effective in the past and it is expected to produce similar results in the future. Strong
cash position of the company is a representation of the strong liquidity position of
business (Balance et.al, 2015). Effective and efficient liquidity position is very
On The Beach: 2019 Budget
Board Report
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important for long term growth and development as investors and finance providers
usually evaluate liquidity position of the company before providing any capital to the
business organization whether such capital is long term or working capital. Here it is
assumed that cash collection strategies in the year 2019 would be similar as 2018.
4. Analysis of Market Conditions>
Basic market information
On the basis of market analysis, it is predicted that the apparel market in Australia
will grow significantly in the coming financial years. In the year 2019, it is expected
that overall revenue generated from this market to would be around US$20,356
million. This revenue expected to increase by 3% in the year 2020 and 2021 (Nayak
and Padhye, 2015). It is also estimated that the majority of the growth will be in the
segment of “women and girls” apparel. Therefore it is important that the management
of "On the Beach" should direct its majority of resources towards this segment to
increase the overall profitability of the company according to the market. On the
evaluation of the global market, currently, the highest revenue in this market is
generated by China (Ha-Brookshire, 2017). If there is an opportunity for the company
to expand its business in the international market then China should be their first
preference.
Overall revenue in the apparel market
On the basis of the above graph, it can be said that overall revenue generated in this
market has been increasing constantly and a similar trend is expected to follow in the
coming financial years. It can also be evaluated that the majority of revenue in this
market is generated by the segment "women and girls apparel". After this segment
"men and boy apparel" and underwear segment has also contributed significantly to
the total revenue. Currently management of the company is not producing any product
and services specifically for "women and girls" apparel segment. Operations of the
company are restricted to the four products produced by the company. For taking
advantage of the market it is important that management should expand its operations
and start to produce apparel products for "women and girls" and "men and boy"
apparel market. This will help the management of the company in long term growth
and development (Australia Post, 2018). If current operations are continued by the
organization then overall profitability will not increase significantly as management is
not taking advantage of the market conditions.
On The Beach: 2019 Budget
Board Report
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Channels of operation (Offline and Online)
The above graph also shows that overall revenue generated from the online channel
has been increasing yearly. On the basis of above graph and preference of customers
in the current business environment, it can be said that revenue from online channels
will increase in future. Therefore it is important that the management of the company
should start an online website of the organization. There are various advantages of
this channel of operation as it will help in reducing the overall cost of sales. Indirect
costs such as sales staff, office expenses, utility expenses etc. can be decreased
significantly with the implementation of an online platform (Australia Unlimited,
2018). In addition to that sales and marketing cost will also be reduced as the
promotion of the company can be conducted through their website. The company
should implement an online channel but their main focus should be on offline
channels as currently more than 85% revenue is generated through offline channels.
Management accounting tools such as budgeting, cash flow management, marginal
costing, budgetary control, financial statement analysis etc. should be used by the
company to increase the overall efficiency and effectiveness of business operations.
Recommendations
Following are some of the recommendations that should be included by the
management of "On the Beach" in order to improve the profitability position of the
company-
 The overall analysis should be conducted by management to evaluate three
loss-making products in order to identify the basic cause of such losses.
Decisions in relation to discontinuation of loss-making segments should also
be taken by the company (Seuring and Goldbach, 2013).
 Resources realized from the discontinuation of loss-making product should be
directed towards expanding the scope of products provided by the
organization. On the basis of the market analysis, it is estimated that most
On The Beach: 2019 Budget
Board Report
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profitable segments are "women and girls" and "men and boy" apparel.
Management should direct their resources for expansion in these segments.
 Net margin ratio of the company is very low therefore it is recommended that
management should implement some cost-cutting strategies that will be
helpful in reducing non-productive expenses.
 The company should also start to invest in establishing an online selling
platform for attracting a new generation of customers (Su, 2013). It is
expected that this channel of selling product and services will be very
successful in the future, therefore it is important to change business operations
accordingly.
On The Beach: 2019 Budget
Board Report
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References
Australia Post. 2018. Inside Australian Online Shopping. 2018 e-Commerce Industry
Paper. Retrievable at:
https://auspost.com.au/content/dam/auspost_corp/media/documents/2018-ecommerce-
industry-paper-inside-australian-online-shopping.pdf
Australia Unlimited. 2018. Australia’s capability in fashion design and advanced
textiles. Australia Trade and Investment Commission. Retrievable at:
https://acquire.startrack.com.au/pdf/Inside%20Australian%20Online%20Shopping
%202017.pdf
Balance, D., Receipts, T.C., Receipts, F.T.C., Disbursements, T.C. and
Disbursements, F.T.C., 2015. Cash Management.
Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working
capital management, corporate performance, and financial constraints. Journal of
Business Research, 67(3), pp.332-338.
Barr, M.J. and McClellan, G.S., 2018. Budgets and financial management in higher
education. John Wiley & Sons.
Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship.
Macmillan International Higher Education.
Ha-Brookshire, J., 2017. Global sourcing in the textile and apparel industry.
Bloomsbury Publishing USA.
Hatten, T.S., 2015. Small business management: Entrepreneurship and beyond.
Nelson Education.
Jindrichovska, I., 2013. Financial management in SMEs. European Research Studies
Journal, 16(4), pp.79-96.
Nayak, R. and Padhye, R., 2015. Introduction: the apparel industry. In Garment
manufacturing technology (pp. 1-17).
Schaper, M.T., Volery, T., Weber, P.C. and Gibson, B., 2014. Entrepreneurship and
small business.
Seuring, S. and Goldbach, M. eds., 2013. Cost management in supply chains. Springer
Science & Business Media.
Su, J., 2013. Strategic sourcing in the textile and apparel industry. Industrial
Management & Data Systems, 113(1), pp.23-38.
Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial
statement analysis and valuation. Nelson Education.
On The Beach: 2019 Budget
Board Report
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