Westbeach Case Study

The full case study is here:  http://bit.ly/tjzLyA.  Thank you to Inc. Magazine and Westbeach for making it available.

Ironically, unlike some of the previous companies examined in case studies, I don’t feel as though the outlook at Westbeach is quite so bleak.  This company seems to have a lot going for it, but has simply made a few missteps.  It is apparent that Mr. McDonald is a competent businessman and the likelihood of Westbeach surviving is good.  Of course, there are areas that ImperoCo can be of help…

Capital budgeting would have been extremely valuable when Mr. McDonald and his partners were contemplating the purchase of Westbeach from the bankruptcy trustees.  This venture required a significant up-front investment with returns expected in future years.  In addition to cash in/outflows, details such as working capital, depreciation, and taxes would need to be taken under consideration.  A thorough capital budget would have outlined the net present value and internal rate of return for this endeavor; eliminating some of the uncertainty for the parties involved.  Also, in the future, this capital budget could be compared to actual results to aid in future analyses.  For instance, analyzing the feasibility of expansion into the U.S. market or expanding into other “action sports” categories.

In addition to capital budgeting, I believe that Westbeach would benefit greatly from assistance with operating and financial budgets.  Operating budgeting focuses on sales, materials, labor, overhead, and administrative expenses.  Financial budgeting, on the other hand, focuses on cash receipts and expenditures.  A thorough budget review would ensure that Westbeach has a comprehensive understanding of its financial plan so that it can scrutinize the area where it really needs help, and that is budgeting advertising expenses.  The Inc. article states that they were spending 80% of their marketing budget on advertising in the U.S. and receiving very little return on that.  Even now, Mr. McDonald is reluctant to reenter what is seemingly a lucrative U.S. market due to past experiences.  Westbeach has shown to be a popular and resilient brand.  With comprehensive budgetary planning and possibly the addition of an experienced marketing professional, it is reasonable to believe that they could reach their goal of $50 million in annual revenue.

Capital budgeting, operational budgeting, and financial budgeting all fall under the strategic planning umbrella.  Taking the time to give critical thought to your business and the environment it operates in on (at least) a yearly basis is critical for ongoing success.  Strategic planning begins with a sound mission statement, a SWOT analysis, and the formulation of a strategy.  Everything else that takes place throughout the year will build on these critical exercises.  Mr. McDonald admitted, “I took my eye off the ball on really fundamental things.”  This is understandable.  He had an enormous amount of responsibility with a company that, at the time, was failing.  However, taking the time to plan appropriately could have kept him focused on what was really important and, possibly, could have even resulted in a contingency plan for the Vancouver dock strike that ultimately put Westbeach into bankruptcy.

Assistance with the previously mentioned services from ImperoCo, based on the $7.3 million annual revenue figure mentioned in the article, would quote as follows¹:

• Mission statement, SWOT analysis, strategy formulation, capital budgeting, operational budgeting, and financial budgeting –
  • Down payment of $2,866.11 and eight monthly payments of $1,074.79.  Or…
  • An immediate cash payment of $10,067.23.  This represents a savings of $1,397.20, or 12.2%

To conclude, it seems to me that Westbeach had made a number of rational decisions since declaring bankruptcy.  It is admirable that they are not simply chasing sales blindly and diving headfirst into a market in which they have not succeeded before.  They are also running with a rather lean staff.  This helps to keep costs in check, but also might hinder the amount of manpower they can commit to doing the things necessary to achieve their goal of $50 million in revenue.  ImperoCo could provide the support needed to achieve this goal, without the commitment of hiring full-time employees

¹ Pricing quote as of November 10, 2011.  Pricing is subject to change at any time.

KB