Acconting And Financial Plan For Magical Health Goodies
DESCRIPTION OF BUSINESS
Objective of Business
- To offer baked cookies, pastries and cakes that are low in calories
- To offer customized bakeries as per specific customer preferences and desire.
At the initial stages of the business, only one employee will be hired. This employee will act as a personal assistant to the sole-proprietor of the business. The employee will assist in taking orders, delivering them and managing the business.
The decision to hire one employee is advantageous to the business as it ensures that at the early stages of the business the amount allocated to wages and salaries on the budget is not a huge amount. The initial stage of any business is viewed as an introductory stage where the market is made aware of the existence of the business and its products. At this stage it is relatively common to have low sales as some customers do not want to be the first to test a product. The low sales will mean that the revenue is also low and hence expenses should be minimized to ensure that the business at least breaks even (Ferrell and Hartline, 2010).
Business activities and Products Offered
The main products for this business are cookies, pastries and cakes. These products will be baked at the sole proprietor’s house. Customers will be notified of the existence of the products via a group formed by the proprietor on Facebook. Through the wall posts and messages sent to the group members, the proprietor will be receiving orders and specific customer preferences for the products offered. All orders will have to be posted 2 days to the date the customer requires them delivered. This will ensure that the proprietor gets adequate time to bake them, package them as per market standards and make a delivery.
The strategy that the business will use is cost leadership. This will be to ensure that production costs for the business are lower than those of its competitors. This will help in increasing profit margins for the business operation (Ferrell and Hartline, 2010).
This business is able to achieve cost leadership as it will have only one employee hence reducing the budgetary allocation on wages and salaries in comparison to its competitors. Also, the business will be home-based and so cost of renting a business premises has been avoided. The business will also have reduced operational costs as the promotions will be done on Facebook which is a free social network.
The products for the business will be cookies, pastries and cakes. The proprietor recognizes that like any other product, these products will undergo the product life cycle. To ensure that the products remain relevant in the market and to maintain sales after market saturation, the proprietor will be re-branding the product after every two years. This will ensure that each brand is not faded out of the market before it achieves its market potential. Also to avoid decline of sales, the proprietor will review the distribution channels after every 6 months to analyze their effectiveness.
The pricing for the products will be done based on cost of production and competitors’ pricing of similar products. The proprietor acknowledges that due to the operations being home based it will lead to reduced costs and hence prices can be set relatively low but this pricing strategy will not be applied. The pricing will be set according to that of competing products though Magical Health Goodies prices will be lower. Setting very low prices would be disadvantageous for the business as it would give consumers a certain price expectation of the products offered by Magical Health Goodies. In case of a future expansion of the business operations to a rented premises and to incorporate more employees the cost of production would increase and this would force the business to either raise its prices or settle for lower profit margins. Raising the prices of the products would react negatively in terms of the market share as consumers already expect products from the business to be lowly priced (Ferrell and Hartline, 2010).
The place where customers can purchase these products will be a virtual store on Facebook. As stated earlier in this financial plan, customers will place their orders on the Facebook group for Magical Health Goodies.
The promotion that the business will use will include sales promotion and personal selling. Sales promotion will be done by offering price-pack deals such as getting an extra portion of cake for each 1 kg cake that a customer buys. During festivities the business will offer reduced prices for products so as to motivate customers to make purchases. As a way of appreciating customers, the company will have a program for rewarding loyal customers where a customer will earn points on every purchase made. When these points reach a certain number they can be exchanged for one of the products offered by the business. Personal selling will involve satisfied customers’ feedback on the group’s wall. Also the proprietor as the group’s administrator will be posting pictures of products on the group wall to attract customer attention. The proprietor will also update the group members by sending them inbox messages on new products, product changes and offers that are available at Magical Health Goodies.
FINANCIAL STAKEHOLDERS AND FINANCIAL INFORMATION
The financial stakeholders for this business will be the owner, lenders such as banks, customers, competitors and suppliers. These stakeholders will all have a major role in determining the financial situation or position of the business. It should be noted that any financial decision that is made in the business will have put all stakeholders into consideration (Mohr, 2008).
The owner will contribute capital to finance the business. Since the owner’s financial resources are limited in terms of the financial requirements of the business, the owner will also get a loan from a bank to meet these requirements.
Short-Term and Long Term Assets and Liabilities
The short term assets that this business will have include all cash held by the business. The inventories that the business will purchase to produce the products will also be current assets as they can be quickly converted to cash. Accounts receivable by the business will also form part of its short term assets. These short term assets represent assets that the proprietor will convert into cash during one operational cycle (Minbiole, 1998).
Assets which the proprietor will hold for a long time will be classified as long term assets. They will include baking ovens that magical Health Goodies will purchase to be used in the production of cakes, pastries and cookies.
Short term liabilities that the business will hold will include accounts payable to suppliers for products provided to the business. The accounts payable also include the wages of the personal assistant and tax to be paid by the business (Minbiole, 1998). In a situation where the accounting period ends before a product that is paid for is delivered, the prepayment will be a short term liability and will be entered in the journals as unearned revenue (Pratt, 2008). The short-term liabilities of the Magical Health Goodies represent financial obligations that the business can meet in one operational cycle.
Long term liabilities are the financial obligations that Magical Health Goodies cannot meet in one operational cycle. These liabilities will include the bank loan that the owner will take to start up the business. Also to be included will be pension obligations to the personal assistant (Pratt, 2008).
The total liabilities for Magical Health Goodies will be more than the total assets but the owner will ensure that the total assets to liability ratio does not exceed 1.5: 1 so as to maintain a favorable ownership equity of the business (Mohr, 2008). The proprietor notes that it will be advantageous when total liabilities are more than the total assets as this will mean the proprietor is using investor’s money to make profits while she can invest her money elsewhere (Pratt, 2008).
|Other Production Equipment||250|
|Bad Debt Reserve||75|
|Estimated Annual Profit||2445|
Fixed Budget during Operation
The fixed budget for Magical Health Goodies would be made by making a budget that disregards variations that may occur in the market during operations (Minbiole, 1998). This business operation does not plan to use such a budget as it recognizes the volatility of today’s markets.
Ferrell, O. C. and Hartline, M., 2010. Marketing Strategy. Cincinnati: South-Western Publishers.
Jamie, P., 2008. Financial Accounting in an Economic Context. New Jersey: Wiley.
Minbiole, E. A., 1998. Accounting Principles I. (Cliffs Notes). New York: CliffsNotes.
Mohr, A., 2008. Financial Management 101: Get a Grip on Your Business Numbers (Numbers 101 for Small Business). Ontario: Self Counsel Press.