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The current assignment focuses on the feasibility of a business plan that is provided within the case study. The case study is about opening a new venture in order to supply geodes in the country. The business will be started by Aunt Hattie who is looking to establish a business which would be providing initial capital from the retirement fund which is available. In order to successfully implement business plan appropriate financial plan is required so as to achieve the credibility of the business plan. The business plan is about selling geodes which would attract potential customers which will leverage income of the business. Aunt Hattie aims at setting up the business in Europe which will be imported from Uruguay and sold in Europe. Aunt Hattie plans to tie an agreement with one of her colleagues who already has a reputable business of geodes in Uruguay. In order to successfully establish the business, there are certain requirement which has to be assessed by Aunt Hattie such as permit for importing and operating products which will be sold in the market. Colada Geodes will be the main supplier of the business which is established in Uruguay itself. The feasibility of the business can be analyzed by calculating break-even analysis, this would facilitate the estimation of minimum amount of sales (Al Hayek 2018). The target of the business is to achieve at least minimum amount of sale each day in order to continue with the business operation. The financial aspect of the business is highly important as it would provide facilitation whether to proceed with the business plan and the project can make attractive profit. The owner is aware of the fact that if the products are imported in bulk than the business may gain attractive discount. This would aid the business to leverage its income and make reasonable revenue (Blank 2017). On the other hand, due to the bulk activity the cost of total operation will be minimized and thereby bringing efficiency within the business operations.
The financial plan incorporates the following aspects such as balance sheet, forecasted income statement and statement of cash flow. The financial plan will provide a brief overview on the overall expenses and generated revenue of the project. The business plan will be based on the assumption and notes to accounts in order to provide justification for different numerical figures. The business plan also includes Sensitivity analysis which will aid Aunt Hattie to make significant comparison between various scenarios (Chen, Yao and Kotha 2009). Moreover, there will be evaluation of time value of estimated profitability of the business this will be done through Discounted Cash Flow Model. The viability of the business plan will be determined with the help of breakeven analysis which will be reflected through the level of sales. This would facilities the business to manage its cost and therefore positively proceeding with incurring profit for the business.
For establishing the new business, the business owner will be requiring enough capital to spend on start-up expenses for the business and therefore, effectively starting the operation of the business. Aunt Hattie plans to obtain geodes from Colada Geodes, who is famous for dealing geodes in Uruguay. The supply of enough geodes is important in order to import from Uruguay to Europe. In order to do so it is necessary that Aunt Hattie has enough cash in hand for assisting the whole import export operation of the business. The business will have to deal with a lot of expenses and also the purchase necessities such as assets for smoothing running of the business process. There will be detailed disclosure of the financial statements of the business which will be formulated for the business. The business owner will =have to bear the initial expenses according to the financial statements to avoid loss, this would facilitate the effectiveness in the business operations.
There are other various sources available through which the business could raise enough capital such as external source and internal source. The internal source could be her own money which she received as pension from her early retirement from work, she received a cash amount of $ 450,000. Aunt Hattie aims at investing all her money on the business which is purchasing and shipping of geodes. Moreover, in addition to the retirement money, Aunt Hattie seeks on taking a business loan of $ 40,000 so that there will not be any kind of shortage for the business. In order to form an appropriate capital structure, the retirement and the loan money could help the business to perform better for the financial plan. The loan plan would facilitate one advantage that is reducing the overall cost of the business. Another advantage which can be noted is using debt capital in the capital mix for the business would facilitate as interest payment related to the same are tax deductible. In simple words it would provide tax advantage for the start-up and therefore it can be considered as the major source for drawing finance. The capital structure is the most important component in order to form effective financial plan for the business. The requirement of the initial capital will be met from the lump sum amount that is from retirement money and loan money which Aunt Hattie will be receiving. There are certain assumptions taken in order to formulate the financial plan for the business which is quite associated with the effective preparation of the business plan. The business aims at operating its function on the idea of supplying geodes which will be imported from Uruguay so that the business could create a place utility for the operational process of the business. With respect to the financial plan of the business, Aunt Hattie must understand certain primary expenses in order to make the business operational and also meeting the initial expenses related to the business. The primary investment of the business will be purchasing certain assets such as refrigerator and developing websites. Moreover, the business will be requiring working capital which is estimated to be at £ 95,300.58. The business capital structure will be enhanced from the coming year as there is expectation from the management that the company will be on hike in demand of the geodes in the business.
The owner needs to reflect all the critical aspects of the business as well in order to formulate a proper business plan. After analysis of the critical aspects the owner needs to estimate the income and expenses which is associated with the business. There also other assumption which has to be considered in order to put account on the financial analysis of the business plan. The initial investment of the trade includes distribution rights and marketing plan as well since, the products will be imported from Uruguay. The overall expense of the distribution rights and the marketing will be estimated considering each and every consignment which will be ordered for the business. The overall expense will be determined based upon the quantity of order made and also for the tenure for which the contract is made to assure that the same is renewed at particular point of time.
Another assumption for the business which has to be considered for the business is the exchange rate of the currency as the financial projection has to be made according to the home country currency (Foster et al. 2019). The exchange rate of the currency is exposed to fluctuation depending on numerous factors. However, in case of the financial projection, the exchange rate is expected to remain quiet constant for the ease of the financial plan. Sometimes, in extreme situations, the conversion needs might change and the same needs has to be considered by Aunt Hattie. While estimating the volume of sales with respect to value in home currency, the same is considered on estimation basis keeping the business model of local geodes retail competitors as the basis. The business prospects analysis has to be considered in order to determine the fluctuation in the exchange rate and hence the same needs to be considered as assumption in order to proceed with the financial forecasting.
The sensitivity analysis is done for the business project for having a clear understanding of various scenarios the business could face while proceeding with the business plan and staring the financial implication for undertaking the business. In simple words, the sensitivity analysis will allow Aunt Hattie to understand how the financial plan will be undertaking in different situations. The business project sensitivity analysis Aunt Hattie is planning to start does consider certain assumptions for which the following projections are made. The following has been demonstrated below.
Figure 1: (Sensitivity Analysis for the Business)
Source: (Created by Author)
From the above figure it is demonstrated that the best price to be charged which can be charged to sell the geodes and also the appropriate lowest sale price which can be charged by the business while considering the demand of the market as well. The basic assumption which has been made while computation is based upon the volume and price, the business is aiming at offering in good and bad scenario (Fleckenstein and Longstaff 2018). It should be noted that the above assumption and computation has an impact on the profitability of the business and therefore it helps in the process of decision-making as well. According to the current estimation, £ 35 will be charged for the geodes in the market of United Kingdom, whereas the same can change in order to maintain a profit margin or due to some inflationary pressure in the market. For the above situation, the anticipated price that will be changed for the products is £ 45. This has to be done so that the business will be able to maintain its productivity and can also meet the break even as soon as possible (Watson, McGowan and Smith 2015). If the business wants to charge less initially then the price has to be £ 25, this is because the business will be able to continue managing its profit margin and at the same time the cost of the business operations can be managed. There is also a possibility that the management of the company would like to keep the price of the geodes less so that the business could increase product sales and therefore, creating a brand and attracting more number of customers in the market.
The above analysis also demonstrates the quantity of products which as to be sold by the business in the market. The quantity is also a factor on which the price could be charged which ultimately depends upon the income of the business. The business could sell 3500 units which will be under lower selling volume option or could have another option that is selling 5500 units for higher selling volume option (Feldstein 2018). Depending upon the market situation, preference, taste and pattern of the buyers the above options can be chosen. In each and every possible way the table suggest that the decision will have a significant impact on the profitability of the business. It is quiet uncertain that what kind of situation the business will be facing. Therefore, NPV under each of the above option is calculated in order to determine the feasibility of the business in various scenarios. According to the above table, the fluctuation in sales is demonstrated for different scenario and therefore, the computed NPV is different for different scenario. The computed NPV for the project in different option is observed to be positive which reflects that the project is financially feasible. Although in case of lower price scenario or lower volume the generated profit will be less as represented in the above table, however the management can make certain amount of profit.
The analysis of different scenarios does provide a brief and understandable idea about the bad and the good situation the business can face in its journey. It also determines whether the business will be financially stable in all the scenarios which will be faced by the business (Johnston 2017). The analysis also provides a clear understanding and idea on the sales volume with the sales price of the product, which the business aims at offering. The analysis also shows how the same above aspects has a significant impact on the profit generated by the business. Therefore, it can be sad that the project is feasible considering the volume and the price estimation that is designed by the management of the firm.
The breakeven analysis is conducted in order to determine at what stage the business will achieve its profit. It also enables the firm to analyze whether a project will be able to cover its fixed cost and as well as whether the business project is feasible. The analysis shows that how much sales needs to be achieved by the business so that there comes a stage where there is no loss or profit. The breakeven analysis for the business is calculated below showing the relevance of the business.
Break even analysis |
||||
Particulars |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Total sales |
£173,400 |
£320,400 |
£320,400 |
£320,400 |
Total Cost of Goods sold |
£42,381 |
£78,088 |
£78,088 |
£78,088 |
Selling expense |
£2,016 |
£3,780 |
£3,780 |
£3,780 |
Contribution |
£129,003 |
£238,532 |
£238,532 |
£238,532 |
Contribution margin |
74.40% |
74.45% |
74.45% |
74.45% |
Fixed cost |
£24,000 |
£24,000 |
£24,000 |
£24,000 |
Breakeven sales |
£32,260 |
£32,237 |
£32,237 |
£32,237 |
Figure 2: (Breakeven Analysis for the Business)
Source: (Created by the Author)
The above table demonstrates the breakeven analysis of the geodes business which will be established by Aunt Hattie. The analysis is conducted in order to determine whether the product which will be imported must attract potential customer and have demand in the market as well. The analysis will help the business to determine whether the business is capable to recovering its fixed cost from the sales operation of the business (Der Foo, Wong and Ong 2015). The analysis is important since it considers at what point the business will be stable and can earn profit.
The analysis is done for a time period of four years and the anticipated sales revenue is observed to incur from the second year. The sales revenue which the store will generate from the second year is observed to be £ 320,400. It is also observed that the same has been remained constant for the next three years. In the same way the business contribution is also demonstrated and observed to be enhanced during the second year. This is because there is significant enhancement of sales in the business (Ireland 2019). The fixed cost of the business for the above-mentioned period is observed to be £ 24,000, the same amount has been seen to be constant for four years. Based upon the elements of the breakeven sales which the business aims at achieving is calculated and is observed to be £ 32,260 for the initial year and thereby from the second year it is observed to be £ 32,237. This reflects the minimum sales figure that the firm should achieve so that the fixed cost are covered and the business will have a smooth flow in operation. The breakeven analysis is accompanied so that Aunt Hattie can get a clear picture that at what level and capacity the business will sell geodes so that the business could know the point of no loss and no profit. Moreover, the breakeven analysis also provide a clear understanding whether the business is ready for making further investment.
The main focus of the income statement is to facilitate the performance of the financial earning of the entity. It is formulated by the management in order to obtain a better idea of the financial success of the firm (DeNoble and Zoller 2017). The income statement reflects the expenses and revenue of the business which is generated and invested over the periods. The income statement shows the overall expenses which can be estimated from the operations of the company. The income statement for the geodes business is represented in the following table.
Income Statement |
||||
Particulars |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Internet sales |
£168,000 |
£315,000 |
£315,000 |
£315,000 |
Sales from Boxes |
£5,400 |
£5,400 |
£5,400 |
£5,400 |
Total sales |
£173,400 |
£320,400 |
£320,400 |
£320,400 |
Cost of goods sold- internet sales |
£41,448 |
£77,715 |
£77,715 |
£77,715 |
Cost of goods sold- boxes |
£933 |
£373 |
£373 |
£373 |
Total Cost of Goods sold |
£42,381 |
£78,088 |
£78,088 |
£78,088 |
Gross Profit |
£131,019 |
£242,312 |
£242,312 |
£242,312 |
Packaging cost Internet sales |
£26,400 |
£49,500 |
£49,500 |
£49,500 |
Packaging cost boxes |
£504 |
£504 |
£504 |
£504 |
Total Packaging cost |
£26,904 |
£50,004 |
£50,004 |
£50,004 |
Total Employee cost |
£20,400 |
£20,400 |
£20,400 |
£20,400 |
Rent |
£3,600 |
£3,600 |
£3,600 |
£3,600 |
Selling expense |
£2,016 |
£3,780 |
£3,780 |
£3,780 |
Depreciation |
£875 |
£875 |
£875 |
£875 |
Total Administrative expense |
£53,795 |
£77,784 |
£77,784 |
£77,784 |
EBT |
£77,224 |
£164,528 |
£164,528 |
£164,528 |
Tax |
£23,167 |
£49,358 |
£49,358 |
£49,358 |
Profit |
£54,057 |
£115,170 |
£115,170 |
£115,170 |
Figure 3: (Income Statement for the Business)
Source: (Created by the Author)
The income statement for the new geodes business is represented in the above table. It shows the sales revenue which will be generated by the firm for four years. The original price of the geodes is an average of 350 Uruguayan Peso per kg. Aunt Hattie the owner of the business has decided to sell the same in 45% in the market of London in order to attract more customers. To understand the market characteristic with respect to the product, a market research needs to be conducted which would cost £ 3,000. The sales units which will be sold is observed to be increasing in the first month. According to the market study it is estimated that the business can sell 50 kg in the first month itself and the therefore, the number will increase over the years. According to the estimation, the owner decides to invest in the business as it is observed that the business will be able to achieve approachable growth rate from the business operations. Since, the products are being imported from a foreign country, the business accountable for shipping and packaging charges which can be estimated to be £ 5.50 per kg. Aunt Hattie decides not to charge the packaging and shipping charge expenses on the buyers so that she can keep the prices of the products low for the initial years of the firm (Huang 2019).
The above table represents that the revenue of the business is anticipated to be from boxes of geodes, from internet and from sales. The total sales revenue which could be generated by the firm is estimated to be £173,400 in the first year. The first-year figures are kept low in order to obtain more realistic figure could be achieved (Davidson 2016). From the second year, the sales are observed to be increasing and estimated to be £320,400. The estimated gross profit of the business depends on the sales revenue that could be generated by the company. Aunt Hattie anticipates that the business has the capability to leverage its sales while considering the other factors constant. There are other expenses which should be considered in the profit and loss statement such as rent, shipping, packaging, employees and so on. The expenses are presented in the income statement which is formulated by the management (Khan, Bradbury and Courtenay 2018). The net profit of the business is observed to be £115,170 and hence, net profit is constant for the next three to four years. This shows that the business has the capability to leverage its profit and gain productivity in these four years. It is estimated that the net profit might increase over the years. It is observed that the net profit is increased significantly from second year and therefore there is a higher chance that the same can be achieved in the coming years.
The balance sheet is a part of the financial statement of a business and it is used by the business for the purpose of effectively demonstrating the financial position of the business. The balance sheet consists of all assets which is owned by the business and liabilities which are incurred during the period. It is often used by businesses for the purpose of acquiring capital from banks and financial institution as the same provides a clear picture of the current standing of the business. The business which Aunt Hattie is considering to open would be requiring an appropriate presentation of the financial position of the business and the same is appropriately demonstrated below:
Balance Sheet Statement |
||||
Particulars |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Cash Balance |
£347,588.00 |
£372,693.14 |
£397,798.28 |
£518,851.99 |
Special jig and tools |
£2,625.00 |
£1,750.00 |
£875.00 |
£0.00 |
Receivables |
£180,094.09 |
£216,976.44 |
£192,746.30 |
£72,567.58 |
Total Asset |
£530,307.09 |
£591,419.58 |
£591,419.58 |
£591,419.58 |
Capital |
£450,000.00 |
£450,000.00 |
£450,000.00 |
£450,000.00 |
Retained earnings |
£54,057.09 |
£115,169.58 |
£115,169.58 |
£115,169.58 |
Total equity |
£504,057.09 |
£565,169.58 |
£565,169.58 |
£565,169.58 |
Total equity and liability |
£504,057.09 |
£565,169.58 |
£565,169.58 |
£565,169.58 |
Figure 4: (Balance Sheet for the Proposed Business)
Source: (Created by the Author)
The anticipated assets and liabilities for the business which Aunt Hattie is trying to establish would be incorporated in the balance sheet of the company. The assets which the business would be purchasing is appropriately depicted in figure 4 considering the nature of the operations of the business (Watson, McGowan and Cunningham 2018). As per the requirement of the business, a special jig and tools would be used by the business for the purpose of cracking open the Geodes and polishing the products so that the same can be sold in the market at appropriate value. Further, the assets which is to be utilized also show cash balance £347,588.00 which is the estimated amount which would be required by the entity for managing the financial process of the business and also meeting the current expenses of the business (Lee et al. 2017). The estimated balance sheet for the business shows that the cash balance for the entity is estimated to enhance further in coming years in exactly 4 years’ time. This is a sign that the position of cash for the business is appropriate and this shows that the business would be able to meet any expenses and new project’s costs without much hassle. This is also an indicator that the business has a favorable viability in the operations of the business.
The capital which would be utilized by the business would be acquired from the retirement fund of Aunt Hattie and the payment which would be received would be a lumpsum payment (Miller and Clark 2016). The lumpsum payment will be utilized by the business for meeting the current obligations of the business (Greenlaw et al., 2018). The capital fund for the entity is appropriately portrayed to be £450,000.00 which is collected from the retirement fund of Aunt Hattie. In addition to this, the business would also be having some retained earnings which would provide appropriate financing options for the business and help in establishing the operations of the business in an effective manner. The profits which the business would be generating in the initial years of operations would be utilized by the business for the purpose of financing the operations and also meeting the current liabilities of the business (Paço, Ferreira and Raposo 2016). It is also to be noted that the retained earnings and reserves which are accumulated by the business would be invested in the development of the business and further expansion of operations of the business.
The cash flow statement is also a part of the financial statement and the same is prepared by the business for the purpose of keeping a track of inflows and outflows of cash of the business. All the transactions which are included in the cash flow statement are generally of cash nature and involves either inflow or outflow of cash (Dai, Haque and Zurbruegg 2018). The cash flow statement is also an indicator of the liquidity position of the business and shows the ability of the company to finance new projects and thereby expand the operations of the business (Rasmussen and Tanev 2016). In the case of the new business which is to be established by Aunt Hattie, the cash flow statement would be important as the same would provide the proprietor an understanding of the financial requirements of the business and also what are necessary cash inflows and outflows which is associated with the operational process of the business (Gentili et al. 2018). The cash flow statement which is formulated by the business is appropriately shown in the table below:
Particulars |
0 |
January |
February |
March |
April |
May |
June |
July |
August |
September |
October |
November |
December |
Opening balance |
£450,000 |
£344,199 |
£342,166 |
£341,093 |
£340,333 |
£339,887 |
£339,754 |
£339,934 |
£340,427 |
£341,233 |
£342,352 |
£343,784 |
£345,529 |
Initital Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Special jig and tools |
-£3,500 |
|
|
|
|
|
|
|
|
|
|
|
|
Website cost |
-£4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Study cost |
-£3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Working capital requirement |
-£95,301 |
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
£1,750 |
£3,977 |
£6,205 |
£8,432 |
£10,659 |
£12,886 |
£15,114 |
£17,341 |
£19,568 |
£21,795 |
£24,023 |
£26,250 |
Total Cost of Goods sold |
|
£509 |
£1,059 |
£1,608 |
£2,158 |
£2,707 |
£3,257 |
£3,806 |
£4,356 |
£4,905 |
£5,455 |
£6,004 |
£6,554 |
Total Packaging cost |
|
£317 |
£667 |
£1,017 |
£1,367 |
£1,717 |
£2,067 |
£2,417 |
£2,767 |
£3,117 |
£3,467 |
£3,817 |
£4,167 |
Total Employee cost |
|
£1,700 |
£1,700 |
£1,700 |
£1,700 |
£1,700 |
£1,700 |
£1,700 |
£1,700 |
£1,700 |
£1,700 |
£1,700 |
£1,700 |
Rent |
|
£1,200 |
£300 |
£300 |
£300 |
£300 |
£300 |
£300 |
£300 |
£300 |
£300 |
£300 |
£300 |
Selling expense |
|
£21 |
£48 |
£74 |
£101 |
£128 |
£155 |
£181 |
£208 |
£235 |
£262 |
£288 |
£315 |
Tax expense |
|
£36 |
£1,276 |
£2,264 |
£3,252 |
£4,240 |
£5,228 |
£6,216 |
£7,204 |
£8,192 |
£9,180 |
£10,168 |
£11,156 |
Closing balance |
£344,199 |
£342,166 |
£341,093 |
£340,333 |
£339,887 |
£339,754 |
£339,934 |
£340,427 |
£341,233 |
£342,352 |
£343,784 |
£345,529 |
£347,588 |
The cash flow statement reveals the sources of cash inflows and outflows from the operations of the business and also demonstrates the final cash position of the business. The cash flow statement for the business is done on a monthly basis so that the monthly estimate of the cash position can be taken into consideration from the view point of the decision-making process. The decision whether to make capital investments during the year also depends on the cash position of the business and also on the requirement of the business (Trimi and Berbegal-Mirabent 2012). The opening balance of cash which is shown for the entity is portrayed to be £450,000 which mainly constitutes the retirement fund which is received by Aunt Hattie due to the option that she opted under the early retirement scheme. The cash flow statement is prepared on a monthly basis in order to present the month cash expenses and revenue which the business is able to generate and also keep a track of the ultimate goal and objective of the business (Ries and Euchner 2013). The preliminary expenses which the proprietor incurs and her business needs to undertake the project is appropriately demonstrated in the financial analysis which is presented above. The cash flow statement demonstrates that the inflows for the entity is generated during the first year which is mainly from revenue from sales of Geodes. The sales revenue generates inflows of cash and is aptly presented in the table presented above. The main cash outflows of the business which can be identified from the table above is packaging costs, rent and labour costs of the business. The cash flow statement also appropriately presents the other expenses and revenue which the business would be generating from ancillary activities (Omar et al. 2014). The closing cash balance for the business is shown to be positive which reveals that the entity would be able to maintain its financial position in an appropriate manner and therefore from the perspective of cash flow balance, the business undertaking looks promising. It can be therefore being concluded that the management of the company should proceed with the undertaking and look to further expand the operations of the business.
An annual estimation of the cash position of the business is also appropriately presented in the table which is shown below. This is done so that the business is able to take decisions regarding which course of action the management of the company needs to undertake and whether additional capital would be required by the undertaking for further expansion or promoting efficiency of the business (Saura, Palos-Sanchez and Grilo 2019). The cash flow statement which is presented below reflects 4 years’ worth of estimation of financial data for the new business which is going to be established.
Cash flow Statement |
|
|
|
|
Particulars |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Opening balance |
£450,000 |
£347,588 |
£372,693 |
£397,798 |
Initial Investment |
|
|
|
|
Special jig and tools |
-£3,500 |
|
|
|
Website cost |
-£4,000 |
|
|
|
Study cost |
-£3,000 |
|
|
|
Working capital requirement |
-£95,301 |
|
|
£95,301 |
Total sales |
£168,000 |
£315,000 |
£315,000 |
£315,000 |
Total Cost of Goods sold |
£42,381 |
£78,088 |
£78,088 |
£78,088 |
Total Packaging cost |
£26,904 |
£50,004 |
£50,004 |
£50,004 |
Total Employee cost |
£20,400 |
£20,400 |
£20,400 |
£20,400 |
Rent |
£4,500 |
£3,600 |
£3,600 |
£2,700 |
Selling expense |
£2,016 |
£3,780 |
£3,780 |
£3,780 |
Tax expense |
£68,411 |
£134,023 |
£134,023 |
£134,275 |
Closing balance |
£347,588 |
£372,693 |
£397,798 |
£518,852 |
The cash flow statement which is presented above represents the annual cash inflows and cash outflows for the business. These expenses are considered to be important as the same would allow the management of the company to acquire assets which is necessary for the operations of the business (Sillup and Porth 2019). The retirement fund for Aunt Hattie would be used for the purpose of financing the operations of the business and the fund amount is £450,000. The working capital requirements as per the estimation which is presented in the above table is £95,301. The sales revenue which is accumulated by the business forms the main part of the revenue of the business and the operational process of the business involves sales of geodes. The closing balance of cash for the entity is reflected to be £347,588 and the forecasts for the same is done on an annual basis considering the trend. This is done as the management is of the opinion that the demand for the geodes would increase from year 2 and therefore, there would be more cash inflows for the business (Stice et al. 2019). The increase in the closing balance of the cash is a sign that the business is viable and the same represents that the business would be able to maintain its liquidity position in the market (Sunder Sunder and Zhang 2018). The forecasts show that the business would have appropriate cash in their hands at the end of the years which means that the management can initiate growth strategies in the operations so that the sales of the business can be enhanced (Tipu 2019). In addition to this, the management of the geodes business would also be able to acquire necessary assets and thereby expand the operations of the business.
The analysis effectively shows that Aunt Hattie is looking to establish a business which would be selling Geodes in London and the same would be imported from Uruguay. The owner has a connection in Uruguay and this would help in setting up the operations of the business and thereby expand the same. The business would be funded by the retirement fund which Aunt Hattie accumulates from her early retirement scheme. The owner would be undertaking a serious analysis of the market so that market trends can be identified for the purpose of setting up a realistic business plan. The product which is to be sold in the market is for decoration purposes and the demand for the product in the market is anticipated to increase in the coming years. The discussion which is conducted above consists of financial plan for the entity so that feasibility of the business can be established. The business plan contains sensitivity analysis which shows different scenarios which might arise for the business. The need of sensitivity analysis is to demonstrate how the business performs in the market if the market is favourable and if the market is unfavourable. The sensitivity analysis reveals that the business would be able to survive within the changing environment and perform well in financial terms. This also reflects that the business would be able to make a name for itself in the market.
The analysis also shows that breakeven analysis for the company is also favourable and the same helps the owner decide sales target which the business needs to achieve considering the fixed costs which the business needs to cover. In addition to breakeven analysis, a summary of income and expenses for the business is also shown. The results of the income statement reveal that the business is feasible and the management of the company must proceed with the same. The analysis also includes a summary of assets and liabilities for the business which is presented in the balance sheet of the company so that the appropriate positioning for the business can be established. The balance sheet is also a statement which can be used by the business for drawing out more capital from banks and other financial institutes. In addition to this, the financial plan which is prepared also depicts cash flow statement for the business which shows the cash inflows and outflows of the business. The cash flow statement for the entity represents the abiity of the business to use cash and finance the operations of the business. In an overall estimation, it can be said that the business plan is viable as the profitability and liquidity aspects are showing positive results. However, certain recommendation can be suggested to the business for further improving the business structure. The recommendations which can be suggested are reflected below:
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