All businesses have obstacles to overcome in the pursuit of success. Small businesses especially must carefully and continuously monitor their financial reports in order to manage effectively and stay viable. The influence of competition in the marketplace creates an environment where managers and business owners must seek out every advantage in order to maintain their competitive edge. As technology advances, the manager must consider the pros and cons of integrating these advances into their business plan. Additionally, most businesses must look after their own interests as well as those of their employees to maximize their potential.
This paper will address the following: 1) Utilization of budgets and performance reports in the decision-making process. 2) Ethical influence on Guillermo??™s accounting decisions. 3) Relevant accounting information for Guillermo to consider when making financial decisions.
Budgets and Performance in Decision-Making
While it is essential to know who your competitors are and to stay ahead of the ???game???, business owners may prevent themselves from completing their goals and objectives if they center their attention solely on their competition. Budgets are produced during the planning phase and in turn are used by management to make plans for the next fiscal year. The appropriate budget performance of a company allows prioritization of short and long term goals and objectives as well as the possible predictions of quarterly profits and or losses. Actual assets, liabilities, and equity information are clearly indicated on accounting ledgers. Guillermo can go back and review his ledgers to determine exactly where the money is being spent, his actual profit or revenue and what his liabilities are compared to assets and revenue. This information will allow Guillermo to improve productivity, create operational efficiencies and economies of scale, giving him the ability to create a plan of action for his future success and prosperity.
Ethics in Accounting Decisions
Ethics deals with integrity, compassion, respect, and fairness. Guillermo??™s has several issues to take into consideration, such as the potential sacrifices made by his family and his employees. Guillermo may have to sacrifice the loyalty of his long time employees, perhaps giving them job furloughs at the expense of modernizing his business. Other cost saving measures may include decreasing or eliminating benefits such as health care and retirement funds. Guillermo will need to carefully weigh all of the options. Since it is his preference not to merge with or acquire another company, he will need to acquire some new technology which will allow him to ???jump start??? his company. This would help increase productivity, therefore increased profitability and preferably not at the expense of his loyal employees. Balance cost-cutting measures with compassion and personal ethics.
Relevant Accounting Information in Decision-Making
Guillermo must determine if his actual assets, liabilities and equity information that are clearly indicated on accounting ledgers will allow him to make an informed decision to either modernize his business or merge with one of his competitors. Most decisions entail quantitative and qualitative analysis that involves gathering information, forecasting, choosing substitutes, executing the business decision and evaluating the outcome. The most relevant factors for Guillermo are reports which detail the variable costs and fixed costs of his operations. Variable costs consist of labor and materials, whereas fixed costs include rent and equipment and at time salaried employees. Additional factors, such as historical costs, sunk costs, differential income and differential costs are all part of the decision-making process. Correct and pertinent accounting information assist Guillermo in the decision making process by helping him form predictions about the outcomes for future planning and outcomes. Guillermo must decide whether to continue with his company status quo, modernize his company at the possibility of sacrificing some of his loyal employees and acquiring or merging with another company. Correct and pertinent accounting information will aid Guillermo in making the correct decision.
Guillermo must balance his business objectives against his personal goals. He must carefully deliberate the future of his company, taking special care to ensure he meets his own goals and objective, but ensure that his business decisions are not guided by pure emotion but by strong business acumen. A smart plan to increase revenue, maximize profits and increase production levels will lead Guillermo to a successful business in furniture manufacturing. He will successfully develop strategies for cost-containment, product pricing and take advantage of the particular strengths of his custom business.