Question
The business that you choose have to be a uk based small business
Referencing has to follow the Harvard model
Solution
Introduction
KTA Group ltd is among small businesses in the UK that operate in the automotive repair and maintenance services industry. The company, which was incorporated in 1998, is located in High Wycombe, United Kingdom. KTA Group Ltd sells new and secondhand vehicles ranging from vans to cars. The venture also offers accessories, commercial van conversions, servicing and maintenance, and body shop services (“KTA Group Ltd”). While the company’s business is diversified, the majority of its revenue is generated from the sale of automotive.
Leadership
KTA Group Ltd is managed through a hierarchical form of leadership. Under this form of management, the company’s employees “work under the regime of formal power” (Petermann, Schreyogg & Furstenau, 2019, p.638). Notably, the business is run by the director, who makes strategic decisions on behalf of the organization. The company’s secretary is also part of the executive management, whose primary responsibility is to ensure that employees implement strategic decisions made by the director. The hierarchical nature of leadership in KTA Group Ltd implies that major decisions are made by the executive management and executed by employees in the low and middle-level management.
Competition
The industry in which KTA Group ltd operates in is free of barriers to entry and exit. As a result, the sector is highly competitive, as several firms and car dealers can enter and leave the market at will. Based on analysis of the current market, there are over ten small businesses that offer similar products among them Premier Metal Works Limited, Batchelors of Ripon Limited, Hobson Industries Ltd, Mangoletsi Holdings, just to mention but a few (“Insight”). A large fraction of these companies also have more assets compared to KTA Group Ltd. For instance, Batchelors of Ripon Limited, one of KTA’s closest competitor, has a net asset of approximately 1.6 million (“Insight”). The great rivalry in the industry poses a significant threat to the sales and profitability of KTA Group Ltd.
Despite the High Wycombe area being highly saturated with car dealers, KTA Group ltd remains one of the highly competitive businesses in the region. Particularly, the venture derives its competitive advantage from its low-pricing strategy (“KTA Group T/A Worleys”.). Unlike other car dealers, KTA Group ltd sells its secondhand cars at competitive prices. For instance, some of the firm’s cars and vans range between £3,750 and £5,990, rates that are relatively lower compared to those of industrial competitors (“KTA Group T/A Worleys”.). The entity’s cost leadership boosts its sale and profitability relative to its competitors. KTA Group Ltd also uses quality as a tool for competition in the industry. Notably, the firm offers quality used cars to its consumers at competitive prices (“KTA Group T/A Worleys”.). By selling quality cars, the venture attracts a large, loyal customer base and builds its reputation among consumers which eventually translate to higher sales and profits.
Furthermore, the venture also uses online marketing channels as methods of competing in the industry. In particular, KTA Group Ltd advertises its product offerings on its website, a practice that enhances its visibility among consumers compared to industrial competitors who rely exclusively on store purchases. Apart from advertising available cars and accessories, the venture also updates price ranges, thus making it easier for consumers to evaluate the cost against the car features before making a purchase. The enhanced visibility of the business enables KTA Group Ltd to compete adequately with other ventures in the industry.
Justification
KTA Group Ltd qualifies as a small business because of its type of ownership. As observed by Bannock (2005), small businesses are family-owned. Mainly, ownership of small business either belongs to one individual or a group of related or non-family persons. Similarly, KTA Group Ltd is a family-owned company that operates in one area, High Wycombe. Bannock (2005) further adds that small businesses vary with size, with larger firms less likely to be solely owned and more likely that other family members and non-family persons share ownership (p.7). A similar feature applies to KTA Group Ltd. The business is owned by two individuals who have significant control of the venture through the ownership of shares. In particular, Allah Hussain and Khadim Hussain both have equal holdings of 350,000 ordinary shares in the business (“KTA Group Ltd”.). The equity shares make the two individuals the primary shareholders and owners of the company.
The number of employees in a firm also define whether or not a venture is a small or medium-sized business. As stated by Levy and Powell (2004), OECD considers enterprises with fewer than 20, 20-99 and 100-299 employees as micro-firms, small and medium businesses respectively. Based on this information, KTA Group ltd falls under the category of small businesses as it had a capacity of 32, 34, 40, 41 and 47 employees in 2011, 2013, 2014, 2015 and 2017 respectively (“KTA Group Ltd”.). It is worth noting that over the years, KTA Group Ltd has had a varying number of employees, with some financial years being characterized by an increase and decrease in capacity of workers. Nonetheless, an analysis of the organization’s trend reveals that despite the changes, the venture has for years maintained a maximum number of 47 and minimum of 32 employees, implying that the firm operates as a small business.
The maximum annual turnover is also a predominant criterion used to gauge the size of the business. In a business context, turnover refers to the volume of sales, revenue or income generated by a venture by the end of a financial year. As observed by Levy and Powell (2004), small and medium-sized businesses have a maximum turnover of 7 and 40 million euros respectively. The implication of this is that for an entity to qualify as a small business, its revenue must range within a maximum of 7 million euros. An analysis of KTA Group ltd reveals an increase in the venture’s turnover, from 8.6 to 14.05 million euros in 2011 and 2017, respectively (“KTA Group Ltd”.). First, the entity’s turnover is higher than the standard turnover of small businesses. However, the company’s maximum turnover is less than that of medium-sized firms implying that KTA Group Ltd is not a medium-sized business. In this scenario, the venture can be classified as a small business regardless of failure to meet the turnover criterion, as it satisfies the requirement of the maximum number of employees and the nature of ownership.
The maximum annual balance sheet total is also a criterion used to determine the nature of the business. The EU defines small businesses as those ventures with a maximum yearly balance sheet total of 5 million Euros (Levy & Powell, 2004). The maximum balance sheet refers to the total number of fixed and current assets in a firm. Under this criterion, the total assets of KTA Group ltd ranged between 4.98 and 5.08 million Euros in 2011 and 2017, respectively (“KTA Group Ltd”.). The fact that the venture’s annual balance sheet total falls within the established EU range implies that it is indeed a small business.
Business Portfolio
Financial Plan
A financial plan primarily focuses on the venture’s balance sheet, income statement and cash flow statement. The cash flow statement is a financial reprint that shows the liquidity position of an entity. It is often used to provide information to investors, creditors and other stakeholders, to facilitate the making of rational decisions about the venture (Motlagh, 2013). Albrecht et al. (2007) further add that the statement of cash flows reports cash collected and paid to an entity in three types of activities, namely operating, investing and financing. On the other hand, the balance sheet reports the assets, liabilities and owners’ equity in a business (Albrecht et al., 2007). Generally, the balance sheet shows the financial status of an entity. The income statement “reports the amount of net income earned by a company during a fiscal period” (Albrecht et al., 2007, p.31). The primary use of the income statement is to evaluate the economic performance of the entity. However, due to the limited data on the firm’s financial outlook, the financial plan will focus mainly on the balance sheet and income statement to determine KTA Group Ltd financial and economic performance over the past few years.
One of the financial features that can be analyzed using the existing data is liquidity ratios. Notably, the liquidity ratio determines the ability of an entity to settle its short-term financial obligations as they fall due (Durrah et al., 2016). Different ratios can are used to assess a firm’s liquidity performance. However, the available data only provides substantial information to compute KTA Group ltd’s current ratio. In particular, the ratio can be determined by dividing the current assets by current liabilities. For instance, the entity’s assets and liabilities in 2017 totalled 5,076,034 and 3,475,131, respectively (“KTA Group Ltd”.). Therefore, the venture’s current ratio in 2017 totalled 1.46. Literature suggests that a high ratio expresses high liquidity of the company, thus ability to meet the short-term liabilities and vice versa (Durrah et al., 2016). As such, the ratio 1.46 means that the assets and liabilities in KTA Group ltd are almost equal, and the venture can adequately meet its short-term debts.
The available data also reveals the venture’s return on capital employed (ROCE). As literature suggests, ROCE “points out the relation between the volume of capital invested and the amount of profits earned on such capital” (Das, 2017, p.848). Analysis of the ROCE is used to evaluate the performance of an organization in consecutive years after capital is employed. Based on KTA Group Ltd financials, the venture’s ROCE totalled 8.27, 9.72, 7.37, 8.02, 8.68 and 6.0 per cent in 2012, 2013, 2014, 2015, 2016 and 2017 respectively (“KTA Group Ltd”.). An assessment of the trend in the six years reveals a significant decline in ROCE in 2014 and 2017. The data also shows that compared to other years, the company’s financial position was unstable in 2016, an aspect that may have posed a threat to its financial position (Das, 2017). Also, the low ROCE experienced in 2016 might indicate that the amount of capital invested in 2011 lacked economic productivity in 2016.
The venture’s financial outlook can also be analyzed based on income generated over the seven years. As is evident from its financials, the turnover increased significantly from 2011 to 2016, with a partial decline in 2017. In particular, the turnover ranged between 8.63 and 16.06 million Euros (“KTA Group Ltd”.). The statistics reveal that KTA Group Ltd had a strong economic performance within the six years despite the considerable decline in income in 2016.
Forms of Ownership
Small businesses can take different forms of ownership including sole proprietorship, limited company, limited partnership and social enterprise. KTA Group Ltd falls under the category of a private limited company. One of the criteria of private limited companies met by KTA Group ltd is the number of members in the organization. As literature suggests, private limited companies have a minimum of two members and a maximum of fifty members (Ghuman, 2010). Similarly, KTA Group ltd has a minimum of two shareholders who have significant control over the entity. Ghuman (2010) also adds that directors and members hold shares in private limited companies. This criterion is met by KTA Group ltd whereby the venture’s shares are held by members of the family-owned business, Allah Hussain and Khadim Hussain.
KTA Group Ltd’s name is also a blatant indication that the entity is a private limited company. Ghuman (2010) states that all the names of private limited companies end with suffix ‘Pvt. Ltd”. Similarly, the suffix “ltd” in KTA Group Ltd signifies the existence of the venture as a private limited firm.
The entity’s decision to operate as a private limited company is subject to a myriad of advantages. Among the most significant benefits is access to wide avenues of finance. As observed by Gabriel (2014), financial institutions prefer offering credit to companies compared to other organizations. As such, KTA Group Ltd can easily access loans from banks to finance its short and middle-term operating expenses. Also, there exists an advantage of business continuity in KTA Group Ltd operating as a private limited company. Business continuity in this context means that the company may still operate even after the death of one of the shareholders.
However, there are certain limitations associated with the nature of business adopted by the venture. In particular, the shares of the company cannot be sold to the general public (Ghuman, 2010). As such, KTA Group ltd cannot expand its capacity of finance through equity shares, as is the case with public limited companies. Additionally, the shares held by the two individuals in the venture are non-transferrable (Ghuman, 2010). Therefore, transfer of rights can only occur with the consent of the two shareholders.
Marketing
Like other ventures in the automotive repair and maintenance services industry, KTA Group ltd indulges in marketing activities to promote the sale of its new and secondhand cars. One of the marketing activities that the venture participates in is advertising. Notably, KTA Group ltd advertises its product offerings on its website and other marketing websites in the UK.
The company’s online advertising strategy is associated with several advantages. First, the strategy is cost-efficient compared to other channels of advertisements. Notably, KTA Group ltd saves significantly from advertising cars on its website compared to paying for print and tv adverts. Second, posting sale adverts on a website provides the firm with an opportunity to receive direct feedback from clients regarding the item on sale. For instance, customers who visit the company’s website can rate the quality of the car, thus allowing the firm to gather adequate information that would be required to improve their products. Besides, online advertising is a quick way to initiate a sale agreement and answer questions that may arise about a product.
Furthermore, utilizing websites as channels of advertisement is an easy way to save on marketing while targeting the intended audience. Arguably, the venture’s primary target population are car buyers. Therefore, consumers who exhibit intentions of purchasing a car would likely visit car websites before making an actual purchase, thus making a website a cost-effective platform for targeting the intended client.
Marketing Mix
Prices
Part of the venture’s marketing mix is its pricing model. Notably, KTA Group ltd uses a low-pricing strategy for its product offerings. As the market analysis shows, High Wycombe is highly saturated with car dealers. As such, firms have to identify ways of differentiating their products from those of other dealers to remain competitive. Therefore, it is likely that KTA Group Ltd uses low-pricing as a strategy to attract cost-sensitive consumers and generate high income in the industry.
Places
KTA Group ltd operates a physical store in High Wycombe, UK. The venture’s physical presence can be associated with robust advantages. First, scholars suggest that brick and mortar stores have the advantage of starting with an existing customer base (Bidgoli, 2004). As such, KTA Group Ltd likely enjoys a broad consumer base by operating a physical store, as consumers gauge the legitimacy of a firm through its physical presence. Second, the nature of the industry in which KTA Group ltd operates requires a physical store where consumers can visit and test products before making a purchase. Besides, consumers are likely to purchase cars in a store where they can easily return the good if it fails to meet their expectations, thus making KTA Group ltd among their number-one option. Apart from the brick-and-mortar store, KTA Group ltd also has an online presence where it markets its cars to potential consumers. The online store enhances the company’s visibility among global consumers and facilitates an increase in its volume of sales in cities across the UK.
Recommendations
Based on the assessment of KTA Group’s financials and other internal activities, it appears that the venture has a strong market position in the industry. However, there are several strategies that the company can adopt to enhance its competitiveness in the next three years. First, the venture should consider utilizing long-term debt to finance its operations. As can be seen from the financial analysis, KTA Group ltd had a current ratio of 1.46 in 2017. The ratio implies that the company can settle short-term debts when they fall due. However, the ratio also shows that the firm’s current assets and liabilities are almost equal, thus raising concerns about the entity’s future capability to meet its short-term debts efficiently. To enhance its current ratio, KTA Group ltd should consider utilizing long-term debt financing due to the strategy’s prolonged repayment period. With this type of funding, the firm can settle short-term liability and put the remaining amount to a better investment. Besides, long-term debts have a lower interest rate, which would allow the firm to save when repaying the loans. Generally, enhancing the liquidity ratio would help the firm meet its financial obligation, avoid bankruptcy and remain competitive in the industry.
The management of the company should consider enhancing the disposal of some of its unprofitable assets to strengthen its ROCE. As is evident from the financial analysis, the company’s ROCE reduced significantly in 2017 compared to previous years. One of the factors likely to lower the ROCE is the decision of venture to retain unprofitable assets which tie down capital and lower profitability. Although the cause of the decline in ROCE in the entity is not clear, the management should consider selling off some of the unprofitable assets, such as slow-moving vehicles, and invest the collected cash in other profitable areas. The proposed action would not only enhance the company’s economic performance but also boost its profitability relative to other industrial participants.
Given that the venture is located in a highly saturated market, the management should consider diversifying its marketing strategies to enhance its visibility among consumers. For instance, the firm can issue brochures to community members to enlighten them about its existence in the industry. Besides, use of brochure would be an ideal way of targeting consumers who are not technologically oriented. An alternative method of marketing would be the use of print media such as newspaper. The firm can advertise some of its sales on daily newspapers to enlighten consumers about available cars and their price ranges.
Lastly, KTA Group Ltd can enhance its competitiveness in the next three years by improving its service delivery processes. Notably, the firm should identify areas in its service delivery processes that it can capitalize on. For instance, the management can choose to offer its customers unique services that lack in other firms such as free repair and maintenance services for the first three months of car use and free vehicle accessories for every new car purchased. Such improvements in the service delivery process would help the company gain reputation among consumers and enhance its sales which would translate to higher profits in the long run.
References
“Insight.” Endole [online]. Available from https://suite.endole.co.uk/insight/company/03669207-kta-group-ltd?page=competition. [Accessed 16 April 2020]
“KTA Group Ltd.” Global Database [online]. Available from: https://uk.globaldatabase.com/company/kta-group-ltd. [Accessed 16 April 2020]
“KTA Group T/A Worleys”. AutoVillage [online]. Available from https://www.autovillage.co.uk/dealers/worleys-citroenkta-fiat-awb_worleys. [Accessed 16 April 2020]
Albrecht, W., Stice, J., Stice, E. and Swain, M. (2007). Accounting: Concepts and applications. 10th ed. San Francisco: Cengage Learning.
Bannock, G. (2005). The economics and management of small business: An international perspective. London: Psychology Press.
Bidgoli, H. (2004). The Internet encyclopedia. New Jersey: John Wiley & Sons.
Das, P.K. (2017). Impact of return on capital employed on company performance- An introspection in India. Saudi Journal of Business and Management Studies. 2(9), pp.848-853.
Durrah, O., Rahman, A.A., Jamil, S.A. and Ghafeer, N.A. (2016). Exploring the relationship between liquidity ratios and indicators of financial performance: An analytical study on food industry companies listed in Amman Bursa. International Journal of Economics and Financial Issues. 6(2), pp.435-441.
Gabriel, V. (2014). Employment agency success. California: Hamilton Rand Publishers.
Ghuman, K. (2010). Management: Concepts, practice & cases. New York: Tata McGraw-Hill Education.
Levy, M. and Powell, P. (2004). Strategies for growth in SMEs: The role of information and information systems. New York: Elsevier.
Motlagh, A.J. (2013). Accounting: Cash flow statement. Journal of Business and Management. 7(4), pp.109-116.
Petermann, A., Schreyogg, G. and Furstenau, D. (2019). Can hierarchy hold back the dynamics of self-reinforcing processed? A simulation study on path dependence in hierarchies. Business Research. 12(2019), pp.637-669.
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