Your Are An Enterpreneur - Assignment Example

? Topic: You Are an Entrepreneur Business Plan Business Type “Beverages Shop” would be initiated with the initial investment outlay of $ 250,000 from a range of investors and lenders. As the name indicates that the business would serve a range of non-alcoholic beverages to the local customers, the entrepreneur intends to offer all types of brands and products available in the beverage industry. Although the beverage industry has remained considerably competitive due to a range of retailers offering beverages brands and products, still there is a market capacity to entertain new retailers in the industry. Additionally, the business would provide a physical space where customers can sit and enjoy drinking different beverages. Although the main objective would be to work as a retailer, however it would also be a way to increase sale by offering congenial environment to the customers. As a result, the ultimate objective would be to enhance the sale of products. Business Product and Staffing Plan The entrepreneur intends to make contractual agreements with the big names in the industry. The companies such as Coca-Cola, Pepsi and other leading companies would be reached. In the agreements, retailer margin, transport of products, loss in transit, bulk purchase discounts and other important factors shall be included. However, before going to finalize agreements, the entrepreneur intends to research the existing policies and interaction between these companies with the existing retailers. For this purpose, both online and offline resources would be used to gather the relevant information. The entrepreneur intends to hire three full time assistants serving to customers. These assistants would be required to guide customers, provide information and assist them with any other requirements needed by the customers. The reason behind hiring three assistants is to facilitate customers. This facilitation enhances a possibility of customer loyalty. One assistant would work as Account Assistant, maintaining chart of accounts on daily, weekly, monthly, semi-annually and yearly basis. Subsequently, this would generate an un-interrupted flow of customers and revenue would be keep coming. Additionally, the business plan would be modified based on certain achievements. For example, within six months, if the budgeted sale is achieved, the initial outlay would experience additional investment of $ 50,000. With this plan, two additional employees would be hired; one would be required to work as store assistant maintaining inventory records and allowing and receiving the subsequent shipments. The other employee would be hired to work along with the retail staff in assisting and entertaining customers. Business benefits Preserved Profit Margin In the retail business, profit margin is always preserved. The producers in association with the relevant regulatory authorities determine and implement pricing strategy from the point of producer to the point of retailer. In this price determination and implementation strategy, profit margin of retailers is always taken into account and is enforced before going to commence receiving orders and delivering shipments to retailers. Minimized Storage Loss Generally, retailers do not experience a substantial storage loss of beverages. As the retailers do not produce beverages and the producers mostly produce and store their beverages, the retailers remain in a position to protect themselves from facing any substantial storage loss, which may be caused by manufacturing date expiry, loss caused by insufficient storage facilities and other unknown related factors. Generally, the retailers do not order bulk supplies of beverages in order to avoid facing any loss may be caused by storage conditions. By doing so, the retailers minimize the chances of facing storage losses. Reduced Cost of Production Loss caused by pilferage, date expiry and transportation cost increases cost of production. However, the retailers decrease their cost of production by reducing the presence of the above mentioned factors. The benefit of reduced cost of production translates into increased revenue. When the retailers diminish their cost of production, in other words they are diminishing outflow of funds and at the same time they are increasing their efficiency and margin of growth and profit. No Marketing Cost Retailers are not required to marketise products as they work as a middle man between a producer and a consumer. The producers are mainly required to increase the sale of beverages. For this purpose, they hire marketing staff and establish marketing departments assigned to use different marketing tools and methods. For this purpose, the producers give charity, use television advertisements, print media advertisements, hire sign boards and other means of marketing are employed to attract attention of targeted segment of consumers. Additionally, social media websites, electronic mail and other virtual methods of marketing are being employed to capture a maximum number of consumers. For these purposes, the producers of beverages are required a considerable amount for marketing their products. On the other hand, the retailers are not required to establish marketing department, marketing staff and adopt different marketing methods to attract the attention of the consumers but they are only assigned to ensure timely supply of the beverages along with quality services. Accounting Chart Business Assets The entrepreneur intends to buy business assets. In which, the purchase of building for shop purposes, and purchase of inventory would be conducted. For the purpose, building worth $ 100,000 would be purchased and inventory worth $ 130000 would be initially invested into the business. Business Equity The entrepreneur has given a loan of $ 20,000 to the business. The entrepreneur does not intend to withdraw this amount of investment in the near future but is willing to put additional amount of investment for the purpose of strengthening the foundations of the business. Business Liability A loan of $ 100,000 would be obtained from lenders on market based interest rates for purchasing shop building. A 2% monthly interest amount would be paid to the lenders. Additionally, $ 130000 would be obtained from a lending financial institution. This amount would be invested for purchasing the inventory and making other relevant expenditures. The same rate of interest would also be applicable to this amount of liability. Although this would put a considerable pressure on the revenue side of the business, however the entrepreneur is confident to decrease the impact of interest amount by paying the principle amount as soon as possible through other sources. Revenue Sources Sale of beverages would be the main source of revenue for the business. Initially, the entrepreneur is inclined to rely on this source. With the passage of time, the entrepreneur intends to increase the scope of business by offering door to door services of beverages and is confident to receive encouraging response from customers. Expenditure Sources Cost of beverages, salary expense, interest expense and electricity expense would be primary sources of expenditure. There is no way to avoid these expenses as they are highly essential to keep business running. However, the entrepreneur sees an increase in these expenses in the first six months in order to solidify the business foundations. After the successful completion of first six months, the entrepreneur would attempt to highlight methods providing means to reduce these expenses. As the entrepreneur is of the view that without attempting to decrease cost of production, it would be very challenging to survive and continue doing business in the existing business environment. Balance sheet Beverages Shop Statement of Financial Position Semi-Annual 31 October, 2012   Assets $ Inventory   45,000 Cash 75,000 Receivables 30,000 Property 100,000 Total assets 250,000 Liabilities   Current liabilities 0 long term liabilities 230,000 Owner's equity 20,000 Total Equity and liabilities 250,000 Income Statement Beverages Shop Statement of Comprehensive Income Semi-Annual 31 October, 2012   Revenue 150,000 Cost of Sales -100,000 Gross profit margin 50,000 Salary expenses -15,000 Electricity Expenses -5,000 Interest expenses -27,600 Operating Profit Margin 2,400 Income Tax -2000 Net Profit Margin 400 Analysis (GAAP or IFRS) Generally Accepted Accounting Principles (GAAP) is accounting standards applied within the United States of America. On the other hand, International Financial Reporting Standards (IFRS) are accounting standards applied to and practiced outside the United States of America. Financial Accounting Standards Board (FASB) develops and maintains accounting standards in the United States of America whereas International Accounting Standards Board (IASB) develops accounting standards for companies working in the United Kingdom, Australia and many European countries. The IASB defines conceptual framework as setting out the accounting concepts underlying the preparation and presentation of financial statements (Kolitz et al., 2009, p.9). In contrast, the FASB defines the conceptual framework as theoretical foundations of the inter-linked objectives and concepts heading toward the establishment of consistent financial accounting standards (Nikolai et al., 2010, p.66). However, in the year of 2002, the heads of both Boards reached to a consensus to pursue and develop a joint conceptual framework by eliminating out the existing accounting standards differences along with enhancing maximum alignment (Whittington, 2008, p. 498). As both IASB and FASB mainly rely on a conceptual framework (Stickney et al., 2010, p.764), this considerably enhances the usefulness of conceptual framework for the purpose of developing and implementing uniform global accounting standards. The entrepreneur would comply with the accounting standards recommended by the IASB. There are various reasons behind this decision. The recent understanding between the two boards highlights that both boards have agreed to merge their efforts in order to promote uniform global accounting standards instead of having two separate accounting standards. Consequently, some results indicate that by the year of 2015, the corporations currently complying with the accounting standards recommended by FASB would begin incorporating and complying with the IFRS. Keeping this view in mind, the entrepreneur would include and practice the accounting standards recommended by the IASB. Additionally, this would bring a range of advantages. For example, from the perspective of the United States, the web of increasing globalization of its economy arguably enhances interests in accounting standards (Carmona and Trombetta, 2010, p.1). Additionally, Ashbaugh and Pincus (2001) highlight that with the implementation of IFRS; many analysts believe that it would considerably increase accuracy in the corporate reporting. Incorporating Changes Accounting changes would be adopted with their relevance to the business operations. If the IASB modifies the existing accounting standards or introduces a new accounting standard, the entrepreneur would consider its relevance to the business operations. Although the business has a very limited capital investment and there is no strong condition or necessity to comply with the relevant accounting standards, however the entrepreneur intends to incorporate and comply with the relevant accounting standards. Internal Controls Internal control is a process developed to ensure accurate and reliable financial reporting, compliance and enforcement of applicable laws, and efficient and effective business operations. The ultimate purpose of internal controls is to enhance business effectiveness and efficiency in which business objectives are attained as they were developed. Authorized Shipment Activities The store assistant would be required to authorize every shipment. He or she would be mainly responsible for every shipment. He or she would be required to record shipment number, number of received items along with bill mentioning total cost of items sent through the shipment. This would reduce the chances of pilferage and increase accuracy and transparency in the business operations. Recording of Business Transactions Sale of beverages items would be recorded by one of the assistants. He or she would be required to follow accounting steps for recording all sale transactions occurred during a day. Subsequently, he or she would be required to tally the records with the store records. By doing this activity, comparability would be enhanced and the chances of error, fraud and omission would be diminished. Implementation of Internal Controls The related individuals would be formally informed. Before the commencement of such activities, training sessions would be given. This would enhance their confidence while conducting audit-related activities. Additionally, the entrepreneur would also supervise their audit activities. For this purpose, the entrepreneur would also attend training sessions in order to increase audit-related understanding. Also, cross check procedures would also be performed by the entrepreneur on monthly basis in which performance and efficiency of the employees would be checked. References Ashbaugh, H., & Pincus, M. (2001). Domestic accounting standards, international accounting standards, and the predictability of earnings. Journal of Accounting Research, 39( 3), 417-34 Carmona, S., & Trombetta, M. (2010). The IASB and FASB convergence process and the need for ‘concept-based’ accounting teaching. Advances in Accounting, incorporating Advances in International Accounting, 26,1-5 Jacob, R.A., & Madu, C.N. (2008). International financial reporting standards: an indicator of high quality. International Journal of Quality & Reliability Management, 26 (7), 712-722. Kolitz, D.L., Quinn, A.B., & McAllister, G.A. (2009). A Concepts-Based Introduction to Financial Accounting. 4th ed. Lansdowne: Juta. Nikolai, L.A., Bazley, J.D., & Jones, J.P. (2010). Intermediate Accounting, 11th ed. USA: South-western Cengage Learning. Stickney, C.P., Weil, R.L., Schipper, K., & Francis, J. (2010). Financial Accounting: an introduction to concepts, methods and uses. USA: South-Western Cengage Learning. Whittington, G. (2008). Harmonization or discord? The critical role of the IASB conceptual framework review. Journal of Accounting and Public Policy, 27,495-502. Read More