Question

This has been a bad year for Park Avenue Furniture. The firm increased

sales revenues to $1,400,000, but total expenses ballooned to $1,750,000.
Although management realized that some of the firm's expenses were out of
control, including cost of goods sold ($700,000), salaries ($450,000), and
advertising costs ($140,000), it could not contain expenses. As a result, the
furniture retailer lost $350,000. To make matters worse, the retailer applied
for a $350,000 loan at Fidelity International Bank and was turned down. The
bank officer, Mike Nettles, said the firm had a net loss for the last 12 months
and that the firm already had too much debt. At that time, liabilities totaled
$420,000 and owners' equity was $600,000.
1.Analyze the financial condition of Park Avenue Furniture.
2.Discuss why you think the bank officer turned down Park Avenue's loan
request.
3.Prepare a detailed plan of action to improve the financial health of
Park Avenue Furniture over the next 12 months.

I don’t need 1 or 2, just 3.

Answer 1

Here is a detailed plan of action to improve the financial health of Park Avenue Furniture over the next 12 months:

1. Reduce expenses

The first step is to reduce expenses. This can be done by:

* Negotiating better prices with suppliers. Park Avenue Furniture should shop around for the best prices on goods and services. They should also consider negotiating longer payment terms with suppliers.

* Reducing waste. Park Avenue Furniture should take steps to reduce waste in all areas of the business. This could include recycling materials, reducing energy consumption, and eliminating unnecessary expenses.

* Improving efficiency. Park Avenue Furniture should look for ways to improve efficiency in all areas of the business. This could include streamlining processes, investing in new technology, and training employees on new methods.

2. Increase sales

In addition to reducing expenses, Park Avenue Furniture also needs to increase sales. This can be done by:

* Expanding into new markets. Park Avenue Furniture could expand into new markets, such as online sales or international markets.

* Developing new products and services. Park Avenue Furniture could develop new products and services that appeal to a wider range of customers.

* Improving customer service. Park Avenue Furniture could improve customer service by providing faster shipping, offering more flexible return policies, and resolving customer complaints quickly and efficiently.

3. Get financing

If Park Avenue Furniture is unable to reduce expenses and increase sales enough to turn a profit, they may need to get financing. This could be in the form of a loan from a bank or a line of credit. However, it is important to note that getting financing will add to the company's debt, so it is important to only get financing as a last resort.

4. Restructure the business

If Park Avenue Furniture is unable to improve its financial health through the above measures, it may need to restructure the business. This could involve selling off assets, closing stores, or laying off employees. However, it is important to note that restructuring the business is a drastic step that should only be taken as a last resort.

By following these steps, Park Avenue Furniture can improve its financial health over the next 12 months.