Business Problem Analysis

This proposal is based on the "Business Problem Analysis" that I upload.You have to read that first. There are three issues that I wrote in the "Business Problem Analysis". You have to provide a solution for the each issue. You MUST follow the organization in below: 1. SOLUTION (you can consider what the solution is, the implementing or faces of actions, and why now?) It is the most important part! May be one and half pages. (1) solution A-for the decease in demand (you might consider about marketing campaign, such as, do more advertising, provide complimentary gifts, give discounts, etc.) (2)solution B-for the decrease of construction area (3)solution C-for the long cash conversion cycle 2. COST (how much it going to be? direct cost and indirect cost) 3. SCHEDULE (like a calendar for the solutions) To avoid off-topic, you have to read the "Business Problem Analysis" first when you start to write this proposal. Also, you have to follow the instruction that I wrote. If you don't follow it, I won't accept this paper. thank you.

TO:                              Business owner

FROM:             Manager Assistant

DATE:             April 4, 2014

SUBJECT:        Decrease of revenue

As you know, we had made great profit in the past years through all of our employees’ efforts. Our company, Zhongcheng Realty Company, have received many awards from the different organizations as well as praises from customers. I am so proud that I am one of the employees of our company. Unfortunately, I have to break this news to you that our company’s revenue weren’t as good as we had expected. In the last three years, we have experienced a sharp decrease in revenue. I find it necessary to inform you our business problems and the possible variables to the problems.

Historical Background

Zhongcheng Realty Company was established in 2003 in Chengdu, China as a family business. Zhongcheng has been engaged for more than 10 years in real estate development and performed 12 development projects since its establishment. In addition, we acquired two local real estate companies in 2008 and 2009, respectively. Zhongcheng is specialized in the building and sales of commercial residential houses, shopping mall, and office building. To keep up with market demand, Zhongcheng expanded quickly. Due to unsustainable market demand, many problems have emerged in the company.

Problem Statement

The projects that our company has been working on seem to have favorable prospects, but our sales teams have expressed that it is not feasible for them to meet the sales target due to economic downturn and other reasons. As a consequence, we have suffered an 80% decline in revenue over the last three years. Because of the consecutive drops in revenue, it is difficult to make profits and continue our projects.

Behavior over time graph

Business Owner, Page 2

April 2, 2014

The chart reflects the changes of revenue from 2010 to 2013. According to the chart, it is not surprise to find that the overall trend indicates a major reduce in revenue. As shown in the chart, it illustrates a drop from $11,002,000 in 2010 to $9,906,000 in 2011. Revenue decrease continued in 2012 with a new record low of $5,503,000. Also, it can be noticed that the revenues reached the bottom at $1,631,000 in 2013. Given the material declines in revenues, our company is facing adverse conditions.

Method for Collecting Data

By reviewing our company’s financial statement, it is apparent that our current business problem is the decrease in revenue as shown above.

Key variables contributing to problem

• The Decrease in Demand

There are two main reason affect the decrease in demand. The worldwide economic downturn has driven a falloff in consumer demand. Another reason is that the Chinese government enacted new laws to control real estate market. They limited the sales of houses to the residents of that particular city, added limitations in mortgage and increased the sales tax for homeowners who purchase a second house. Due to these policies, the demand has been decreased significantly. The majority of our local real estate companies have been impacted by the problems mentioned above, and our company is not an exception.

• The Decrease of Construction Area

In response to the decrease in demand, we decreased our total construction area from almost 580,000 ft² in 2010 to around 90,000 ft² in 2013. While our variable costs have been decreased proportionately, our fixed costs (i.e. administrative salaries) remain to be the same. Therefore, it costed us more per square feet on average, hence a decrease in our profit margin.

• Long Cash Conversion Cycle

The cash conversion cycle expresses the time it takes for cash outflows to convert back into inflows. It is very important because it is tied up with cash flows, working capital level, liquidity, profitability and operating cycle. As a real estate company, we suffer the disadvantage of slow cash conversion cycle. We have to take more time to convert outgoing cash into incoming cash. That definitely affects our company’s revenues and profits.