Information for management
Joe Murphy retired a few years ago at the age of 48, having built up a substantial retirement portfolio through a range of entrepreneurial activities. He moved to the Snowy Mountains to follow his dream of a peaceful mountain life. However, after a few months, Murphy became restless and opened a ski equipment store. This single store soon grew into a chain of four outlets spread from the Snowy Mountains to the Victorian Alps. As Murphy put it, ‘I can’t believe how fast we’ve expanded. It’s basically been uncontrolled growth—growth that has occurred in spite of what we’ve done’.
Although business was profitable, the chain did have its share of problems. Sales tended to be seasonal, with a slowdown once the snow had disappeared. Murphy therefore added fishing and camping equipment to his product line. The need to finance required inventories seemed to be bulging and left cash balances at very low levels, occasionally giving rise to short-term bank loans.
Part of Murphy’s business focused on skiing trips, which were arranged through local ski lodges, and included ski hire, lessons and lift passes. Reports from the company’s financial accounting system seemed to indicate that this part of the business was losing money because of increasing costs, but Murphy could not be sure. ‘The traditional income statement is not too useful in assessing the problem’, he noted. ‘Also, my gut feeling is that we are not dealing with the best suppliers in terms of quality, delivery reliability and prices.’ Additional complications were caused by an increasingly competitive marketplace, with many former customers now buying equipment through the internet.
Murphy was not sure what to do. The company’s accountant was very good at keeping the books and preparing the financial statements and tax return, but she did not understand the way the business really worked.
1 Describe the types of information that Murphy needs to run his business more effectively.
2 Murphy approaches the accountant to seek her help in gathering and analysing this information, but she responds: ‘You must be joking—I’m an accountant. My job is to look after the money side of the business!’ Do you agree with this statement?
3 What actions would you recommend that Murphy takes?
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