Lawrence Sports: Working Capital Management
Financial solvency is a principle responsibility every firm has to its shareholders, which includes the rudimentary element of having a good working capital management. Lawrence Sports, a large sports manufacturer that generates $20 million in annual revenue, is a company at risk of losing its financial solvency because of its poor state of working capital management (University of Phoenix, 2012). In fact the current state of affairs is causing significant stress on the business relationship with Mayo Stores (95% sales source for Lawrence Sports). To remedy this situation, Lawrence Sports must ratify its working capital management model to improve its sales impacts, liquidity, relations with stakeholders, and short-term financing mix (University of Phoenix, 2007). This paper hopes to demonstrate three alternative policies to working capital management that include possibilities of outsourcing, insourcing, and cash budgeting.
First Alternative Working Capital Policy: Outsourcing
Lawrence Sports is faced with multiple financial conflicts related to both account payable and account receivable. The relationship that Lawrence Sports has with its suppliers and retailer and how to keep this relationship in good standing is put to the test due to issues the company has with its main retailer business partner. The process of keeping capital revenues in a positive margin created a conflict of negotiation between Lawrence Sports supplier and retailer. Since both the retainer and supplier are integral elements to the Lawrence Sports business, the necessity to evaluate, assess, and provide a financially solvent plan is crucial to future relations. Evaluating its operations, finances, and management also builds confidence of its partners.
An area of improvement to keep the cost of running the company is to outsource for some of the material to be manufacture in a country with lower hourly pay rate and cheaper raw material thus...