The Business Performance of Classic Restaurant - Term Paper Example

Executive Summary The report aims at appraising the business performance of classic restaurant both present and current business situation in order to help manager makes an informed investment decision based on the outcome of the forecast provided. The forecast will be on the basis of income statement, the cash flow statement as well as the statement of financial position for classic restaurant. The financial forecast for classic restaurant depict that the company is a going concern with steady economic growth in the market as depicted by 1.5% steady dales growth rate. The company experienced less cash inflows in the month of august 2015 due to acquisition of an equipment worth $25,600. The restaurant has instituted effective internal controls over cash in order to ensure that the budget estimates is attainable within the stipulated time frame. The significance of financial forecast to classic restaurant is that it will aid the business manger in making an informed decision in terms of business viability as well as guaranteeing the going concern for the restaurant. Table of Contents Executive Summary 1 1. Introduction 3 1.1. Limitation 3 2. Scope 3 3. Forecasted Income Statement 4 4. Forecasted Cash Flow 4 5. Forecasted Statement of financial position 4 6. Internal Control 5 6.1. Reconciling the bank statement 5 6.2. Auditing 5 6.3. Segragation of Duties 6 7. Recommendations 6 7.1. Cash Flow forecast 6 7.2. Forecasted Statement of financial position 7 8. Conclusion 7 9. Reference list 8 10. Appendices 9 1. Introduction The budget forecast is executed by the restaurant manager of classic restaurant with objectives of reporting to the top manager concerning the company financial forecast with appropriate control measures relevant to realize the forecasted estimates and to provide advice in making use of the budgeting as a planning and controlling tool (Hunter 1999). 1.1. Limitation The budget estimate faces constraints from the industrial understanding as well as the restaurant. As a result, the advice provided to the restaurant will just be applicable to the entire performance of the business unlike purposely comprehensive. It is an intricate exercise to appraise the performance of the restaurant as the estimated budget is executed for the fourth quarter of the financial periods well as intricate to be compared with the industrial performance which is appraised on yearly basis (Hussey 2010). 2. Scope The scope of the report will majorly be categorised into 3 main parts; the introduction of the financial forecast, the internal controls realised from the forecasted financial estimates as well as the advice provided to the restaurant on the basis of the budgeted outcome. The information for decision making is realised from the forecasted incomes statement, the cash flow statement as well as the statement of financial position of the classic restaurant. Forecasted Financial Statements 3. Forecasted Income Statement The forecasted incomes statement depict the estimates for the three months ending September 2015 .the sales will grow by 1.5% each month closing at $20,561.33 in the month of September 2015as depicted in the appendix table below. The impact of the sales growth is attributable from the portion as well as change in menu pricing for the restaurant leading to cut in operaitng cost with an improved reported net income for the restaurant. 4. Forecasted Cash Flow There is close correlation between the forecasted incomes statement and the budgeted cash flows for the classic restaurant. The trend in cash inflows and outflows for the restaurant for the subsequent financial periods might be appraised as well as provide information of existing cash to cater for the daily operating cost and debt. The cost of electricity is accounted for each financial period closing at $ 4,544.56 for the last three months expense. The cost of the accountant is only incurred and paid off in the month of September worth $575 Which implies that the cash outflows is accounted in the same month of September, the restaurant as anticipated to incur extra $25,600 to acquire an asset. The result of the forecasted cash flows depict that the restaurant will realize a low presence of cash to buy new equipment hence the business must get rid of asset acquisition in order to get rid of business liquidity risk (John B. Caouette 2008).. 5. Forecasted Statement of financial position The forecasted statement of financial position depict the estimated worth of the business as well as the extent to which the asset is sussed to generate more returns to the business. As depicted in the appendix C below, the forecasted statement of financial position for classic restaurant depict the capital cost of $108,800 which implies the restaurant must supervised the capital cost so as to realize specific returns inform of profits needed for the business success. 6. Internal Control This is a significant factor in appraising the presence of indiscretion like the errors or loss consequential from diverse are of the restaurant. In this regards, the internal control instituted in the restaurant will be minimized which in turn would lead to Improvement in realizing the forecasted sets. The consideration of the internal controls relevant to classic restaurant is as follows. 6.1. Reconciling the bank statement Reconciliation of daily banking with the records in the restaurant daily will lead to improved internal control over cash which would imply that the business will realize the budgeted forecast. It is vital to allocate autonomous personnel who aren’t a bookkeeper or have a right of access to cheque books which would ensure that there are no chances for fraudulent entries in the book of accounts. 6.2. Auditing Undertaking an audit will improve the effectiveness of the internal control of the classic restaurant. The system will improve the fraud detection as well as controls the compliance with the accounting standard. The auditing of the classic restaurant might be executed by external practitioners or by internal auditors of classic restaurant. The outcome of the audit procedures would lead to enhancement of operation as well as improvement of the restaurant internal controls which would lead to achievement of financial forecast 6.3. Segragation of Duties Segregation of duties is an important exercise to control the risk of stern fraud executed by personnel in the restaurant by creating an internal control system of check and balances. 7. Recommendations Forecasted Income Statement The forecasted incomes statement is significant in aiding the manager to reach a conclusive verdict relating to inventory ,management, efficient in reinstating as well as establishing the features in the operation that might be ventured more so as to aid create more returns to the restaurant (Nersesian 2004). The outcome of the forecasted income statement might be compared with the past performance as well as exploited to the spot difference thus extra exploitation might be executed. The justifiable forecasted income statement which is in com plaice with the accounting standard might be provide forecast of the classic restaurant anticipated business performance and thus impacting the financial institution verdicts. 7.1. Cash Flow forecast The forecast of the cash flow for the restaurant is significant in establishing the best cash management, by understanding the best cash management, the classic restaurant might be assured of the existing cash to cater for the debt and operating cost. This might be employed as manual to making capital investment decision where the forecasted cash flows is positive. 7.2. Forecasted Statement of financial position The forecasted statement of financial position anticipates the business situation of the restaurant in terms of liquidity and capital resource exiting to guarantee the going concern assumption for classic restaurant. Where it is employed together with the forecasted income statement, it may aid in establishing the appropriateness of the financial forecast for classic restaurant. 8. Conclusion It can therefore be conclude that financial forecasted is a significant for classic restaurant since, budgeting help in cutting on cost as well as provide the basis to which the business must operate within in terms of financial constraint which in turn would lead to cost reduction as well as improvement of reported net profit for the restaurant and minimise liquidity risk consequential from forecasted statement of financial position. An effective internal control system put in place in the restaurant will as well as ensure accountability and reduction of fraud which in turn would lead to cash management and consequently, classic restaurant would achieve its financial objectives from the forecast which would aid in making a proper planning for the restaurant in terms of financial hence making classic restaurant a going concern entity. 9. Reference list Cheng-Few Lee, ‎L 2010, Handbook of Quantitative Finance and Risk Management, John Wiley $ Son's, New York. Hunter, WC 1999, The Asian Financial Crisis: Origins, Implications, , London. Hussey, R 2010, Fundamentals of International Financial Accounting , Cingage learning, London. John B. Caouette, ‎IA‎N 2008, Managing Credit Risk: The Next Great Financial Challenge, John Wiley & sons, New Yorl. Nersesian, RL 2004, Corporate Financial Risk Management, John Wiley & sons, New York. R, SJP 2013, Economics and Financial Management for Nurse, John Wiley anf Son's, London. Stijn Claessens, ‎MAK 2013, Financial Crises Explanations, Types, and Implications. 10. Appendices Classic Restaurant Forecasted income statement for period ending September 2015 July August September Total Food Revenue $ 59,390.70 $ 69,280.86 $ 73,607.80 $ 202,279.35 Beverage Revenue $ 25,453.16 $ 29,691.80 $ 31,546.20 $ 86,691.15 Total Revenue $ 84,843.85 $ 98,972.65 $ 105,154.00 $ 288,970.50 Cost of Goods Sold Food COGS $ 18,411.12 $ 21,477.07 $ 22,818.42 $ 62,706.60 Beverage COGS $ 8,145.01 $ 9,501.37 $ 10,094.78 $ 27,741.17 Total COGS $ 26,556.13 $ 30,978.44 $ 32,913.20 $ 90,447.77 Gross Profit $ 58,287.72 $ 67,994.21 $ 72,240.80 $ 198,522.73 Expenses Electricity $ 1,342.66 $ 1,554.59 $ 1,647.31 $ 4,544.56 Printing Stationery $ 217.60 $ 217.60 $ 217.60 $ 652.80 Internet Telephone $ 604.22 $ 674.86 $ 705.77 $ 1,624.85 Postage $ 83.20 $ 83.20 $ 83.20 $ 249.60 Rent $ 3,900.00 $ 3,900.00 $ 3,900.00 $ 11,700.00 Salaries&FT Staff $ 10,806.25 $ 10,806.25 $ 10,806.25 $ 32,418.75 Casual Wages $ 13,575.02 $ 15,835.62 $ 16,824.64 $ 46,235.28 Payroll on Cost $ 2,438.13 $ 2,664.19 $ 2,763.09 $ 7,865.40 Insurance $ 850.00 $ 850.00 $ 850.00 $ 2,550.00 Marketing $ 1,541.67 $ 1,541.67 $ 1,541.67 $ 4,625.00 Repairs&Maintanance $ 552.50 $ 552.50 $ 552.50 $ 1,657.50 Accountant $ 175.00 $ 175.00 $ 175.00 $ 525.00 Depreciation Quarter $ 2,866.67 $ 2,866.67 $ 2,866.67 $ 8,600.00 Total Expenses $ 38,952.90 $ 41,722.15 $ 42,933.69 $ 123,248.74 NBIT $ 19,334.82 $ 26,272.06 $ 29,307.11 $ 75,273.99 Interest $ 550.00 $ 550.00 $ 550.00 $ 1,650.00 NBT $ 18,784.82 $ 25,722.06 $ 28,757.11 $ 73,623.99 Tax $ 5,353.67 $ 7,330.79 $ 8,195.78 $ 20,880.24 NPAT $ 13,431.15 $ 18,391.27 $ 20,561.33 $ 52,383.75 Appendices B; Forecasted cash flow Classic Restaurant Cash Flow Quarter Ending 30 September 2015 Cash Receipt July August September Total Cash Receipt $ 76,359.47 $ 89,075.39 $ 94,638.60 $ 260,073.45 Debtor Receipt $ 15,620.00 $ 8,484.39 $ 9,897.27 $ 34,001.65 GST Received $ 9,197.95 $ 9,755.98 $ 10,453.59 $ 29,407.51 Total Receipts $ 101,177.41 $ 107,315.75 $ 114,989.45 $ 323,482.61 Cash Payments Cash Purchases $ 18,589.29 $ 21,684.91 $ 23,039.24 $ 63,313.44 Creditor Payments $ 18,950.00 $ 7,966.84 $ 9,293.53 $ 36,210.37 Electricity per month $ 5,230.00     $ 5,230.00 Printing Stationery $ 217.60 $ 217.60 $ 217.60 $ 652.80 Internet Telephone $ 604.22 $ 674.86 $ 705.77 $ 1,984.85 Postage $ 83.20 $ 83.20 $ 83.20 $ 249.60 Rent $ 3,900.00 $ 3,900.00 $ 3,900.00 $ 11,700.00 Salaries&FT Staff $ 10,806.25 $ 10,806.25 $ 10,806.25 $ 32,418.75 Casual Wages $ 13,575.02 $ 15,835.62 $ 16,824.64 $ 46,235.28 Payroll on Cost $ 2,438.13 $ 2,664.19 $ 2,763.09 $ 7,865.40 Insurance $ 850.00 $ 850.00 $ 850.00 $ 2,550.00 Marketing $ 1,541.67 $ 1,541.67 $ 1,541.67 $ 4,625.00 Repairs&Maintanance $ 552.50 $ 552.50 $ 552.50 $ 1,657.50 Accountant       $ - Purchase of Equipment   $ 25,600.00   $ 25,600.00 Loan Payment $ 2,000.00 $ 2,000.00 $ 2,000.00 $ 6,000.00 GST on Purchases $ 4,640.00 $ 5,542.66 $ 4,234.65 $ 14,417.31 GST paid to ATO $ 11,600.00     $ 11,600.00 Tax Payment $ 19,800.00     $ 19,800.00 Total Other Payments $ 115,377.87 $ 99,920.30 $ 76,812.14 $ 292,110.30 Net Cash Flow -$ 14,200.45 $ 7,395.45 $ 38,177.31 $ 31,372.31 Appendix C – The Classic Restaurant Budgeted Balance Sheet The Classic Restaurant Balance Sheet As at 31 September 2015 Current Assets Cash at Bank $ 124,162.31 Total Current Assets Accounts Receivable $ 10,515.40 Inventory $ 27,210.00 $ 161,887.71 Non Current Assets Equipment $ 145,000.00 Total Non Current Assets Less accumulation depreciation $ 36,200.00 $ 108,800.00 Total Assets $ 270,687.71 Current Liabilities Accrued Electricity $ 4,544.56 Total Current Liabilities Account Payable $ 9,873.96 Accrued GST $ 14,990.20 Accrued Tax Payable $ 20,880.24 Accrued Accountant $ 525.00 $ 50,813.96 Non Current Liabilities Loan $ 85,000.00 Total Non Current Liabilities Less Principle Payments $ 4,350.00 $ 80,650.00 Total Liabilities $ 131,463.96 Net Assets $ 139,223.75 Owners Equity Share Capital $ 49,200.00 Total Owners Equity Retained Profits $ 90,023.75 $ 139,223.75 Read More