The preset report details the business plan required to be prepared for establishing a start-up business. In this context, the business plan is about opening a coffee shop in the Australia for meeting the daily need of coffee among the country’s population. The coffee shop is planned to be established in Queensland City of Australia and will be named as ‘Chit-Chat Coffee Shop’. The business is planned to be established in Australia for meeting the need of high-quality coffee among the population of the country. The coffee shop aims to provide to its customers the best in quality coffee along with complementary services of pastries and some other snack items. The coffee-industry in Australia has shown signs of positive growth in the past few years due to increasing demand of coffee among the Australians. It is estimated that the demand of coffee is expected to rise sharply over the coming fiver years in Australia Café or coffee shop, n.d).
The company needs to obtain licenses and permits for operating in the highly competitive coffee industry of Australia. The company must be legally ensured in the first place by obtaining legally approved form from the government. The business will be established in sole proprietorship and thus need to meet all the legal requirements regarding the same. As such, the legal form of the business will requires the compliance with Australia New Zealand Food Standards Code and also by other food and safety rules (Reynolds, 2011). Also, the business need to also appoint a food safety supervisor for inspecting the quality of coffee produced at regular intervals of time. This is necessary for obtaining license from the judicial authorities for opening up the business. In addition to this, the company also needs to effectively abide by all the legal rules and legislations regarding the environment protection so that the operational activities of the business do not deteriorate the environment in any way (Café or coffee shop, n.d).
There are many sources of finance but looking at the size of the business, the sources are limited to few options. Sources of finance available for the small and medium scale size business are as follows:
There are various documents that need to be furnished along with the bank loan application. Among them projected income statement and balance sheet helps to better explain the business progress to the bank and easy the process of approval of loan.
|
Expenses that has to be done at start up |
|
|
Initial period Expenses |
|
|
Particulars |
Amount (in $) |
|
Kitchen and Fixtures |
$ 64,800.00 |
|
Furniture and Interior |
$ 49,500.00 |
|
Legal |
$ 9,000.00 |
|
Rent |
$ 45,000.00 |
|
Packaging and Stationary |
$ 25,500.00 |
|
Other requirements |
$ 12,600.00 |
|
Total expenses at Start up |
$ 206,400.00 |
|
Assets required for the business |
|
|
Particulars |
Amount (in $) |
|
Cash Required |
$ 150,000.00 |
|
Current Assets (Inventory) |
$ 30,000.00 |
|
Non-Current Assets |
$ 120,000.00 |
|
Total Assets |
$ 300,000.00 |
|
Total Requirements |
$ 506,400.00 |
|
Capital Furnished at owner’s end |
$ 86,400.00 |
|
Loan from Bank |
$ 420,000.00 |
|
PRO FORMA PROFIT AND LOSS |
|||
|
YEAR 1 |
YEAR 2 |
YEAR 3 |
|
|
Sales |
$837,489 |
$1,674,981 |
$3,349,962 |
|
Other income |
$0 |
$4,500 |
$6,500 |
|
Total Revenue |
$837,489 |
$1,679,481 |
$3,356,462 |
|
Direct Cost of Sales |
$185,871 |
$371,742 |
$743,481 |
|
Other Costs of Sales |
$0 |
$0 |
$0 |
|
TOTAL COST OF SALES |
$185,871 |
$371,742 |
$743,481 |
|
Gross Margin |
$651,618 |
$1,307,739 |
$2,612,981 |
|
Gross Margin % |
77.81% |
77.87% |
77.85% |
|
Expenses |
|||
|
Payroll |
$154,350 |
$458,500 |
$786,800 |
|
Marketing/Promotion |
$17,500 |
$17,500 |
$17,500 |
|
Depreciation @ 10 % |
$12,000 |
$12,000 |
$12,000 |
|
Rent |
$304,500 |
$434,000 |
$521,500 |
|
Utilities |
$4,463 |
$8,750 |
$14,000 |
|
New location setup |
$43,750 |
$87,500 |
$87,500 |
|
Total Operating Expenses |
$536,563 |
$1,018,250 |
$1,439,300 |
|
Profit Before Interest and Taxes |
$115,056 |
$289,489 |
$1,173,681 |
|
EBITDA |
$115,056 |
$289,489 |
$1,173,681 |
|
Interest Expense @ 10% |
$42,000 |
$42,000 |
$42,000 |
|
EBT |
$73,056 |
$247,489 |
$1,131,681 |
|
Taxes Incurred @25% |
$18,264 |
$61,872 |
$282,920 |
|
Net Profit |
$54,792 |
$185,617 |
$848,761 |
|
Net Profit/Sales |
6.54% |
11.05% |
25.29% |
(Fridson and Alvarez, 2011)
|
PRO FORMA BALANCE SHEET |
|||
|
YEAR 1 |
YEAR 2 |
YEAR 3 |
|
|
Assets |
|||
|
Current Assets |
|||
|
Cash |
$ 245,299.60 |
$ 222,842.03 |
$ 402,092.18 |
|
Accounts Receivable |
$ 502,493.40 |
$ 1,004,988.60 |
$ 2,009,977.20 |
|
Inventory |
$ 45,600.00 |
$ 95,800.00 |
$ 246,000.00 |
|
TOTAL CURRENT ASSETS |
$ 793,393.00 |
$ 1,323,630.63 |
$ 2,658,069.38 |
|
Long-term Assets |
|||
|
Long-term Assets |
$ 120,000.00 |
$ 120,000.00 |
$ 120,000.00 |
|
Accumulated Depreciation |
$ (12,000.00) |
$ (24,000.00) |
$ (36,000.00) |
|
TOTAL LONG-TERM ASSETS |
$ 108,000.00 |
$ 96,000.00 |
$ 84,000.00 |
|
TOTAL ASSETS |
$ 901,393.00 |
$ 1,419,630.63 |
$ 2,742,069.38 |
|
Liabilities and Capital |
Year 1 |
Year 2 |
Year 3 |
|
Current Liabilities |
|||
|
Accounts Payable |
$ 321,937.50 |
$ 610,950.00 |
$ 863,580.00 |
|
Current Borrowing |
$ – |
$ – |
$ – |
|
Tax Payable |
$ 18,263.88 |
$ 61,872.25 |
$ 282,920.25 |
|
SUBTOTAL CURRENT LIABILITIES |
$ 340,201.38 |
$ 672,822.25 |
$ 1,146,500.25 |
|
Long-term Liabilities |
$ 420,000.00 |
$ 420,000.00 |
$ 420,000.00 |
|
TOTAL LIABILITIES |
$ 760,201.38 |
$ 1,092,822.25 |
$ 1,566,500.25 |
|
Paid-in Capital |
$ 86,400.00 |
$ 86,400.00 |
$ 86,400.00 |
|
Retained Earnings |
$ 54,791.63 |
$ 240,408.38 |
$ 1,089,169.13 |
|
TOTAL CAPITAL |
$ 141,191.63 |
$ 326,808.38 |
$ 1,175,569.13 |
|
TOTAL LIABILITIES AND CAPITAL |
$ 901,393.00 |
$ 1,419,630.63 |
$ 2,742,069.38 |
|
Net Worth |
$ 141,191.63 |
$ 326,808.38 |
$ 1,175,569.13 |
The successful establishment of the coffee shop highly depends on its accounting department for effective management of financial resources. The accounting department is responsible for predicting the total amount of expenditure that will be incurred by the business operations and the estimated revenue to be realized. The accounting information needs to be communicated to each and every department of the company for making effective decisions. The accounting information is required at every stage of business establishment for making decisions regarding production, marketing, human resources and other strategic decisions. The development of effective strategic decisions relies on adequate monitoring and controlling of the financial resources. The coffee industry of Australia is highly competitive and thus the company needs to attain a competitive edge by right pricing of its products and services (Dagwell, Wines and Lambert, 2015). The determination of right price for products and services in the coffee shop depends on the accounting departments and therefore it can be said that their role is very crucial for the success of the company. The accounting process of the company will include bookkeeping, determining the accounting methods for valuing the assets and liabilities, managing all the financial resources, developing the financial results of the company and disclosing them publically at the end of each reporting period. The accounting process will help in developing proper financial plan for achieving the pre-determined business goals and objectives.
The financial accounting involves the development of financial reports by the company as pre the standard accounting principles and conventions. The general purpose financial statements of the company includes balance sheet, income statement and the cash flows statements that need to be developed by the company as per the financial accounting guidelines. The development of financial reports is essential for the company to promote goodwill in the market that will in strengthening of its brand image. In addition to this, the company needs to adopt the managerial accounting practices for interpreting and analyzing the useful information relating to income and expenses from the financial reports for making decisions regarding the long-term growth and development (Press, 2015).
Analysis of financial statements provides the profitability performance of the company in the current year and also compares with the previous years. Liquidity performance can also be evaluated through use of financial statements analysis (Werner and Stoner, 2010). So it can be said that analysis of financial statements is very useful to the managers due to its decision usefulness in various categories of operation such as inventory control and sales volume control etc. Different types of financial analysis are given as under:
The decision regarding the retaining or profit distribution relies solely on the discretion power of management. The management can decide to retain profit for maximizing the value of the firms. This needs to be done by forecasting the future cash flows that are expected to be realized by the business operations if it retains profit. The retained profit can be used as operating capital in the next accounting cycle for realizing more gains. Thus, on the basis of forecasted results, if there exists chances of realizing larger profits in the coming accounting period by retaining profits rather than distribution then it should be retained. As the business is a start-up, it has minimum number of shareholders and therefore the decision of profit retention is less likely to impact the shareholder’s wealth. However, the mutual consent of all the shareholders of the company should be taken at the time of making such decisions (Dagwell, Wines and Lambert, 2015).
References
Bull, R. 2007. Financial Ratios: How to use financial ratios to maximise value and success for your business’. Elsevier.
Café or coffee shop. n.d. [Online]. Available at: https://ablisui.business.gov.au/QLD/resource/Cafe%20or%20coffee%20shop%20business%20start-up%20guide.pdf [Accessed on: 22 September 2017].
Dagwell, R., Wines, G. and Lambert, C. 2015. Corporate Accounting in Australia. Pearson Higher Education AU.
Drake, P. P. and Fabozzi, F. J. 2012. Analysis of Financial Statements. John Wiley & Sons.
Fridson, M. S. and Alvarez, F. 2011. Financial Statement Analysis: A Practitioner’s Guide. John Wiley & Sons.
Press, T. 2015. Accounting for Small Business Owners. Callisto Media Inc.
Reynolds, C. 2011. Public Health and Environment Law. Federation Press.
Sagner, J. 2010. Essentials of Working Capital Management. USA: John Wiley & Sons.
Werner and Stoner 2010. Modern Financial Managing; Continuity and Change. Freeload Press, Inc.
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