MEMO
To: Melissa Connell
From:
Re: Accounting ERP System and Huntsville Heights Beach and Resort Inc. Acquisition
Date:
HghTech
NER is currently using HghTech for its accounting and finance functions. The system though prior days being popular needs upgrades or a complete overhaul due to the inefficiencies it exhibits. The ERP is slow and its functions are limiting based on the needs of the current business and operations. The system cannot help the organization with an integrated function of booking hotels online where customers can check room availability and make reservations for their stay. This makes it difficult for customers and also the prompt response and processing of orders, receipts, and maintaining a customer database.
Customer’s information data i.e. addresses, credit card information, telephone numbers, e-mail addresses, and travel preferences, and the Accounting data which is stored in a server on the NER’s head office in Toronto which is accessible by all users. This is risky for the business where all users can access information making the organization prone to potential cyber-attack or loss of data in case of arson.
There are other risks in the accounting department; where one staff handles finance and the IT issues. This is a potential risk because there is a lack of segregation of duties. The same staff handles general ledger and other accounting modules i.e. Payables and Receivables. In the accounts payable department, two of the three accountants have credentials to pay invoices. This is a risk and only one person should be allocated those duties to avert the issues arising and ease of tracking any misappropriation.
Therefore, the company should invest in a more robust ERP Accounting system with more functions and faster. Moreover, the organization should hire an Information and Technology Manager to address all issues concerning Information Technology. There should be segregation of duties where different persons are in charge of different accounting modules or where two or more people are authorized to pay invoices at the same time.
Travel Systems
This system has worked with prominent hotel chains in the United States. The service provider of Travel Systems is well known and is located in San Jose, California. The system offers a complete information system outsourcing package to its clients which they use to record all transactions. The system also processes data and stores it in TS’s server where the data is transferred using a secure line to prevent potential cyber-attack. TS can avail different types of reports ranging from sales, costing, and performance reports among others. The system can be integrated with cloud storage where users can access data and operate remotely. The company should consider investing in this system especially this time when they intend to purchase Huntsville Heights Beach and Resort Inc.
Financial Statement Adjustments
Table i
Capitalized Earnings Valuation Approach
This method is income-oriented and values the business based on estimated future cash flows to be generated by the company. These future cash flows are capitalized using a capitalization rate applicable to the industry in which the company operates. In this case, the Capitalization rate for the industry under which Huntsville Heights Beach and Golf Resort Inc. operate in is 20 percent. Below is the valuation for the Huntsville Heights Beach and Golf Resort Inc.
Table ii
Recommendation
Based on this data, the company should buy the resort. The value of the business is $ 23,675,000 while the owners are selling the business for $ 14,000,000