Case Study on Accounting and Financial Plan of “Magical Healthy Goodies”

Type of paper: Case Study

Topic: Business, Management, Finance

Pages: 2

Words: 550

Published: 2019/10/03

Description of Business

“Magical Healthy Goodies” is a home-based business, selling low-calorie healthy cookies, cakes, and pastries. Business objectives, which are specific clearly defined targets, are the following: starting from December 2010, to increase sales twice by the end of February 2011, and achieve sales of $15 000 in the following 6 months.  In order to do this, sole proprietor of the business Ms. Fatmah Hemdan will hire one personal assistant Ms. Alyaa Mohamed, who will be helping with orders, deliveries, and overall management. The business will use social media marketing, namely Facebook group, to promote their products. Social media activities will include updating the group, inviting new friends, and sending email invitations to join the group and purchase the products.

Identification of Financial Stakeholders and Required Financial Information

Financial stakeholders of “Magical Healthy Goodies” include:

Internal stakeholders: Ms. Fatmad Hemdan, a sole proprietor owning the business, who also plays a role of a manager and protector of business possessions. She conducts planning, control, and decision-making in the firm. She and her assistant, Ms. Alyaa will be responsible for external stakeholder accounting, which include preparation of balance sheets, profit and loss statements, and cash flow statements.

External stakeholders: the funding body, competitors, customers and suppliers. The firm will get a bank loan in order to raise start-up capital and realize their plan. To receive a business loan, they will need to prepare a business plan showing a lender why the loan is necessary and how the money will be used. Besides, the lender must know whether the firm will be able to repay. For this reason, cash flow projections have to be written to show financial data and possible risk. In addition, a statement of personal financial status, past business tax returns, and credit rating report of the owner is needed. As soon as the loan is received, the firm will start their business and do external stakeholder accounting through balance sheets, profit and loss statements, and cash flow statements (Ward n.d.).

Direct competitors of the firm are entrepreneurs and companies, producing low calorie cookies, cakes, and pastries. In order to stay competitive and acquire new customers, they will conduct research on management and marketing practices, pricing policies, special receipts used by “Magical Healthy Goodies”.

Customers of “Magical Healthy Goodies” are mostly female Facebook users and their friends, who take care of their health, make sport, want to lose weight, and would prefer purchasing fresh home-made healthy food for themselves and their families instead of regular products from shops and supermarkets. Customers will need to know information related to pricing, quality of products, raw materials used, as well as social and environmental impact of the products.

Suppliers include wholesalers or retailers of materials, the firm needs to produce and pack bakeries. Necessary materials that Ms. Fatmah and Ms. Alyaa will buy on a regularly basis are flour, brown sugar, fructose, honey, salt, milk, eggs, margarine, vegetable oil, etc. In addition, the firm will need paper package suppliers in order to pack and deliver goods safely. Their information needs include knowledge of financial health and chain practices of the firm, their business operations, ethics, accountability and disclosure.

Good financial information requires thorough business planning and preparation of all the accounting and financial documents described below, timely reporting to external stakeholders, and doing everything possible to achieve business objectives.

Identification of Business Assets and Liabilities

Ms. Fatmah’s long-term liabilities include repayment of the start-up bank loan, which is due to be paid in 1.5 year (Ward n.d.). Short-term liabilities are accounts payable – cash owed to suppliers, and paid at the end of every month; salary payable and taxes payable.   Long-term assets are represented by Ms. Fatmah’s home office, equipment such as oven and microwave she uses to bake the products, while short-term assets are raw materials and other supplied used to bake cookies and cakes; cash, and possibly accounts receivable – money her customers own for products purchased on credit.

Owner’s equity, which is reported on the firm’s balance sheet, is difference between total assets (long-term and short-term assets) and total liabilities (short-term and long-term liabilities). At the beginning owner’s equity will be in minus, since the bank loan due in more than a year will be a long-term liability, and need to significantly increase sales in order to repay the loan with interest (Clausen 2010).

Identification of Business Budget

Ms. Fatmah intends to get $10 000 to start her home business. Thus budget forecasting revenue, expenses and profit, will ensure that expenses will not exceed their limits. In the view of the fact, that the firm does not have many variable costs and can predict and control any possible expenses in the future, the fixed budget would be suitable. Ms. Fatmah’s expenditures can change only due to price growth for raw and packaging materials, or electricity. Thus, a realistic financial plan can be prepared, and there will not be a need to change it in the future.

Conclusion

“Magical Healthy Goodies”, owned by Ms. Fatmah is a small business that does not require a large investment. The entire production process will be done at home; there is no need for additional employees except for one personal assistant; Facebook advertising chosen by Ms. Fatmah is absolutely free, and requires only time and effort. However, in any case in order to get a loan, necessary financial and accounting information must be prepared and reported regularly to stakeholders. The firm must have a clear business plan, identify assets, liabilities and business budget to achieve success and obtain profit.

References

Clausen, J 2010, Accounting 101 – owner’s equity and small business balance sheet, viewed 14 December 2010, < http://www.suite101.com/content/accounting-101–owners-equity-and-small-business-balance-sheet-a246147>.

Ward, S, n.d., How to get a small business loan, About.com guide, viewed 14 December 2010, < http://sbinfocanada.about.com/cs/financing/a/getbusinessloan.htm>.