Business Report

Table of Contents
Executive summary/Introduction...............................................................................................1

ISSUES......................................................................................................................................1

Issue 1-High Investment without proper market research.....................................................1

Issue 2-Only small portion of house owners ended up contacting.........................................2

Issue 3-Hiring contactors accounted to 35% of cost last year...............................................3

Issue 4-Identifying the correct accounting treatment for such high-end technology.............3

Issue 5-Making more investment in advertising for business client growth..........................4

Issue 6-Overlooking of minor expenses.................................................................................4

Issue 7-Major pieces were purchased by Paul.......................................................................5

REFERENCES...........................................................................................................................6
Executive summary/Introduction
Sarah have started a new business, House Tech with her husband, Paul, whose business
model is similar to that of an IKEA but the couple came up with an innovation strategy by
taking up unique approach to their interior designing. They started with an idea of using a
virtual reality goggles into customer’s home so that they could see how a renovation would
look. This is really a unique idea for presenting the interior design to customer at their homes.
By analysing the houses of the owners they could add their own expertise to the vision of
customers along with a specific product that could be bought or build during the renovation.
Though this is really a unique business idea but in reality there are various issues which can
be analysed in a case study. House Tech is facing various issues like there may arise issue of
high investment in technology with less or no low returns which can result in the loss of a
business also company may face issues of high expensed due to lack of proper business
planning and overlooking of expenses. Also, couple are planning for increasing its business
by generating more and more customer and this can result in high investment in advertising
and at the same time can give rise to issues of inadequate advertising strategy which can
increase the expenses of the company and failure of strategy as well. In addition to that
company may an issue of incorrect accounting treatment for high end technology used by
House Tech which can result in the huge loss of a company. So, it is really important for a
company to address these issue and develop a proper plan or strategies to minimize these
issues in order to operating business smoothly with high profits and less expenditures.

ISSUES
There are various issues which can be analysed within the case study and these issues
can cause hindrances to House Tech in its business operations and these issues are mentioned
below:

Issue 1-High Investment without proper market research

As Sarah and Paul has made an investment in a technology with no or fewer market research.
To start a business of any kind particularly with high technology such as virtual reality needs
a proper market research. Without a proper market research there are high chances of failure
of business and lack of proper business strategy as per need of customers. By proper market
research House Tech would be able to meet needs of customer and develop a proper business
model which could bring high return for Sarah and Paul (Lichtenthal, 2020). So, this market
research was totally missing within the business of House Tech.

1
Analysis

It can be analysed from the case study that as House Tech has established a new model of
business by making high investment in high-end technology without a proper market research
could bring both positive as well as negative aspects to the company. One of the major
positive aspect is that making a proper market research can prove to be highly expensive for
House Tech but avoiding such thing it has minimised the expenses for start-up for a business.
In present business scenario market research can prove to be costly for a business but the
couple believed in their gut feeling and established a business by making a modification in
the business model of IKEA by introducing virtual reality and other features (Sadibekova and
et al., 2021). On the other hand the negative consequences for not going for market research
could result in the failure of entire business. This can also give a high chance of targeting
wrong customer and offering irrelevant products and services in the market.

Issue 2-Only small portion of house owners ended up contacting

Though Sarah and Paul came up with a unique model of business which has a potential to
surpass the model of IKEA but only small portion of homeowners contacted with Sarah in
coming week or months for the same type of work that Sarah has quoted earlier. This means
that the conversion rate of customers was very low and this also gave rise to the issue of less
profitability for House Tech and less growth of business of a company (Schneider, 2021).
With such a huge investment, if company is not able to increase its customer base this can be
a major problem for a company.

Analysis

It can also be analysed that at the beginning House Tech had very low conversion rate as only
small portion of homeowners contacted Sarah for taking up the work. One of the positive
impact this is that it gave the couple a time to think over their business and look for chance
for improvements over the period of time. High conversion rate does not always mean high
profitability. Due to this House Tech was able to improve the experience of their customers
and this also allowed Sarah to help her customers to realize their dreams in an effective
manner. This approach had positive impact on the business of House Tech in the long run as
over a period of time people realized that this is the best way to renovate their homes
(Zumstein and Kotowski, 2020). On the other hand low conversion rates also decreased the
profitability ratio of House Tech and also depicts lack of proper strategy for motivating the
customers or inappropriate business idea to influence customers. It is really important for a

2
new business to influence and attract more and more customers in order to generate more and
more profits

Issue 3-Hiring contactors accounted to 35% of cost last year

Cost Incurred by the company last year Percentage of Cost
Hiring contractors 35%
Purchasing of Appliances and furniture 55%
Other supplies cost 10%
Profit Margin 30%
Total Cost Incurred 70%

As most of work was done by the couple but they also hired external contractors to perform
certain jobs and this hiring of contractors have accounted for 35% of the cost for the company
in last year. Such a percentage of cost can prove to be huge for a company and can even
decrease the profitability value for the company (Alnahhal, Tabash and Ahrens, 2021).

Analysis

From the case study it can be analysed that as House Tech has hired contractors for
performing certain jobs, so this has given rise to 35% cost for the company. One of the major
consequences of this is that by hiring contractors, House Tech was able to perform more and
more tasks and meet the demands of their customers on time. Due to this company was able
to increase its customer engagement rate which proved beneficial for the business of House
Tech. Though this strategy cost 35% to company but eventually company was able to
complete the tasks on time (Mwesiumo, Nujen, and Buvik2021). On the other hand one of
major negative impact for hiring contractors is that it would decrease the profitability ratio of
the company. Also, lack of skills of contracts could pose a threat for a business of House
Tech. Sometime hiring contractors with less skills can increase the cost of the company.

Issue 4-Identifying the correct accounting treatment for such high-end technology
Particulars Quantity Cost
Virtual Reality Goggles 2 $1400
High-definition Camera 1 $600
MacBooks 2 $3,500
Total - $5,500
Less 50% of original cost - $2,750
Loss - $2750

3
This another issue faced by the company to identify the proper accounting treatment for
company’s high-end technology. Use of technology has cost a significant amount of money
to House Tech for example 2 VR Goggles costs $700 each, high-definition camera cost $600
and two MacBooks for $1,750 each. Also, Sarah plans to sell everything after 2 years at half
price of original cost but she can do better in selling these items in order to generate more
money from them (Guozhi, Lexuan and Lu, 2020). This is due to the fact that she lack
guidance of all journal entries on various equipment due to which she is unable to identify
correct accounting treatment for high-ended technology.

Analysis

It can be analysed form the case study that Sarah is not able to identify correct accounting
treatment for high-end technology this could surely result in the negative consequences for a
business. As Sarah has made a significant investment in equipment in order to conduct
business. She has purchased 2 MacBooks for $1,750 each, 2 virtual reality goggles for $700
each and high-definition camera for $600. All of these equipment purchased is expected to
last for 5 years with no salvage value but she plans to sell these equipment at half rates. Here
it can be analysed that she could sell these equipment at much high costs but due to lack of
guidance on journal entries like payments, purchases, eventual sale and annual usage could
result in the loss of an organization (UBARA, 2020). On the other hand if Sarah is able to
identify the correct accounting treatment for high-end technology, she would be able to
minimise her expenses for investing in the best technologies in the future. This can also allow
the company to stay competitive in the business and gain more profits.

Issue 5-Making more investment in advertising for business client growth

Total Engagement $24,000
Less Advertisement Cost -$2500
Net Revenue $21,500
Revenue for 1st year $15,000
Total increase in revenue $6,500

In order to increase the engagement, advertising can play a major role. But there issue of
allocating a proper budget for advertisement. Also, identifying the proper advertisement
strategy to increase engagement for speciality items made by Paul can be major issue for a
company (Tiwari Sharma and Sharma, 2021).

Analysis

4
It can also be analysed that to increase the engagement and to generate more revenue, Paul
estimated that spending $2,500 a month i.e. $30,000 a year could increase the engagements
@ 10 engagements per years which can prove to be beneficial for House Tech in the long
run. By making a significant investment in advertising process can prove to be profitable for
the company in generating more and more leads in the future. This can also help House Tech
to develop a brand just like IKEA through aggressive marketing of its products and services
across the country. On the other hand one of negative consequences of such strategy is that it
is really important for House Tech to develop a proper marketing team and effective
marketing strategy in order to sell their products and services including speciality items of
Paul. If marketing team of House Tech fails to influence the target customers it could result
in the huge loss of a business (Nianzu, Ageeva and Yi, 2021). Besides it is really important
for accounts teams to allocate appropriate marketing budget in order to carry out different
marketing activities and look for right channels of marketing. This can prove to be a
challenging process for House Tech.

Issue 6-Overlooking of minor expenses

Sarah also wonders that might be overlooking various expenses as they have been
overlooking vehicle expenses into the account. This has given rise to suspicions to other
similar accounts which could impact the profitability ratio as well as overstating of profits of
House Tech (Lebaron, 2021).

Analysis

It can also be analysed from the case study that, by overlooking the minor expenses could
bring a huge negative consequences such it can bring variations within the accounting system
of an organization. The profit side of the accounting statement would be overstated as these
expenses will not be subtracted from the total revenue generated by House Tech. This will
give a company false notation that company has been earning more and more profits which is
a huge issue for a company. On the other hand overlooking of such expenses could bring a
positive consequences to House Tech such expenses can be treated as sunken costs which
cannot be recovered and this will improve the decision making process of the company in the
future due to which company will record every possible transaction involved in the business
(Valve, Lazarevic and Humalisto, 2021).

Issue 7-Major pieces were purchased by Paul

Company Engagement Revenue Count Total

5
 Paul’s Engagement $900 20 $18,000
General Engagement $300 20 $6,000
Total 40 $24,000

In first year House Tech have completed 30 interior design engagement in which majority of
pieces were purchased by Paul. It can be noted that Paul’s speciality items resulted in high
revenue of $9,000 but this minimized to the average revenue of $6,000 only due to purchased
pieces (Brege and et al., 2021). So, Paul unable to create its speciality items can also decrease
the profits for House Tech.

Analysis

It can also be analysed that despite of Paul’s experience in building furniture in building in
tables and chairs but in the first year, House Tech have completed 30 interior design
engagements in which major pieces were purchased and this has resulted in the average
revenue of $6,000 for such job but on the other hand Paul’s speciality items have resulted in
the higher revenue of $9,000. So, this difference suggests that Paul’s speciality items are
much valued than that of purchased pieces. Besides It has been estimated by Paul that he is
spending $200 of material as well as 4.5 hours on an average to create per piece and he has
made 25 pieces last year (Susanty and et al., 2021). So, here Paul can create more and more
pieced by decreasing the amount of time spend on creating per piece can prove profitable for
House Tech in generating more revenue.

REFERENCES
Books and Journals

Alnahhal, M., Tabash, M. I., & Ahrens, D. (2021). Optimal selection of third-party logistics
providers using integer programming: a case study of a furniture company storage and
distribution. Annals of Operations Research, 1-22.

6
Brege, S., Nord, T., Brege, H., Holtström, J., & Sjöström, R. (2021). The Swedish furniture
industry–a study of strategic groups and performance. Wood Material Science &
Engineering, 1-14.

Guozhi, L., Lexuan, L., & Lu, S. (2020). A Framework to Analyze International
Competitiveness: The Case of Construction Firms of China. International Journal of
Economics, Finance and Management Sciences, 8(2), 84.

Lebaron, G. (2021). Wages: An overlooked dimension of business and human rights in global
supply chains. Business and Human Rights Journal, 6(1), 1-20.

Lichtenthal, J. D. (2020). 869. Fundamentals of Business Marketing Research (The

Foundation Series in Business Marketing).

Mwesiumo, D., Nujen, B. B., & Buvik, A. (2021, June). Driving collaborative supply risk
mitigation in buyer-supplier relationships. In Supply Chain Forum: An International
Journal (pp. 1-13). Taylor & Francis.

Nianzu, C., Ageeva, J. V., & Yi, L. (2021). Advertising as a platform for language
game. EntreLínguas, 7(1), 12-21.

Sadibekova, B., Saidakhmedova, N., Makhmudova, A., Abdukhamidov, S., & Mukhamadiev,
A. (2021). To determine the role and importance of marketing research in the
development of tourist routes. Middle European Scientific Bulletin, 8.

Schneider, D. (2021). Digital nudges as conversion enhancers in profit-oriented and non-

profit oriented digital business models.

Susanty, A., Sumiyati, L. S., Syaiful, S., & Nihlah, Z. (2021). The impact of lean
manufacturing practices on operational and business performances at SMES in the
wooden furniture industry. International Journal of Lean Six Sigma.

Tiwari, A., Sharma, R. R., & Sharma, T. (2021). A Case of Family Business Strategy of
Expansion. Global Business Review, 0972150921989667.

UBARA, M. (2020). Comparison between retail outlets (brick and mortar) and e-commerce
platform from a Retailer and manufacturer perspective. A case study of the Furniture
industry in Abuja, Nigeria (Doctoral dissertation, London School of Business and
Finance).

7
Valve, H., Lazarevic, D., & Humalisto, N. (2021). When the circular economy diverges: The
co-evolution of biogas business models and material circuits in Finland. Ecological
Economics, 185, 107025.

Zumstein, D., & Kotowski, W. (2020). Success Factors of E-Commerce-Drivers of the

Conversion Rate and Basket Value. In 18th International Conference e-Society
2020 (pp. 43-50).