Introduction
Better Living LLC projects estimate a gross profit margin of approximately 37% while the projected sales for the first year of operation is estimated to be over $150,000. The breakdown of the first year business ratio analysis, balance sheet, income statement, monthly cash-flow analysis, and other financial details are shown in the excel spreadsheet attached.
Cash or Accrual Basis of Accounting
With reference to IRS guidelines, Better Living LLC will adopt a cash basis accounting as it will help the business in having to control over when recording expenses and revenue. The business will also enable Jeff to reduce his taxable income by opting activities such as purchasing supplies and prepaying expenses right at year end. Although the cash basis is considered to be a substandard accounting method, the revenue will only be recorded when the cash is received whereas the expenses are recognized upon payment of cash. Since the accounting system of Better Living LLC is simple to handle complex transaction records, it will benefit from the simplicity of the cash method of accounting. Jeff can simply be looking at the checkbook or sales receipts to add his profit and losses. Further, he will able to know the amount of cash that he owns at any particular time.
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Accounting and Finance Software
Basically, one of the most essential system in any type of business is the accounting software. For the Better Living LLC, Jeff will need an accounting software that will help in reduced costs, faster accounting processes, and mistake-free taxation. Further, since the aim of a system is to solve a deficiency in the business, Better Living LLC is "young" and the current problem is making a forecast such as an estimate of the budget. Therefore, Jeff will need an accounting software that can record the current level of activities and transaction and also forecast the future operations. Quick Books accounting software matches the need for Better Living LLC. This software is widely used to suit learning and experienced users as it offers advanced accounting modules which include payroll, employee management, purchasing, inventory, sales, and reporting.
Sources of Financing
For the start-up funds, Jeff, the entrepreneur himself will use his personal finances and short-term loans to fund this business. Further, since he has already established a home office and also the basement has a large area to store inventory, the start-up cost will only be associated with starting inventory, equipment, and approval of the license.
|
Source and Use of Funds Statement |
| Source Amount |
|
Owner collateral: Owner Savings $10,000 Home Equity $30,000 Start-up Funds Required $40,000 Total Funds Committed $40,000 Uses of Funds |
| Item Cost |
|
Sales and Marketing $10,000 Legal fees $5,000 Consulting Fees $8,000 Supplies & Materials $15,000 Other $2,000 Total Require Funds $40,000 |
Ration Analysis
| BALANCE SHEET RATIOS: Stability (Staying Power) | |||||
| 1 | Current | ||||
|
Current Assets |
$ 108,500.00 |
1.669231 |
|||
|
Current Liabilities |
$ 65,000.00 | ||||
| 2 | Quick | ||||
|
Cash + Accts. Rec. |
$ 33,500.00 |
0.515385 |
|||
|
Current Liabilities |
$ 65,000.00 | ||||
| 3 | Debt-to-Worth | ||||
|
Total Liabilities |
$ 65,000.00 |
0.429043 |
|||
|
Net Worth |
$ 151,500.00 | ||||
| INCOME STATEMENT RATIOS: Profitability (Earning Power) | |||||
| 4 | Gross Margin | ||||
|
Gross Profit |
$ 55,000.00 |
0.367 |
|||
|
Sales |
$ 150,000.00 | ||||
| 5 | Net Margin | ||||
Net Profit Before Tax |
$ 26,700.00 |
0.178 |
|||
|
Sales |
$ 150,000.00 | ||||
| ASSET MANAGEMENT RATIOS: Overall Efficiency Ratios | |||||
| 6 | Sales-to-Assets | ||||
|
Sales |
$ 150,000.00 |
0.990099 |
|||
|
Total Assets |
$ 151,500.00 | ||||
| 7 | Return on Assets | ||||
Net Profit Before Tax |
$ 26,700.00 |
0.176238 |
|||
|
Total Assets |
$ 151,500.00 | ||||
| 8 | Return on Investment | ||||
Net Profit Before Tax |
$ 26,700.00 |
0.176238 |
|||
|
Net Worth |
$ 151,500.00 | ||||
| ASSET MANAGEMENT RATIOS: Working Capital Cycle Ratios | |||||
| 9 | Inventory Turnover | ||||
Cost of Goods Sold |
$ 95,000.00 |
1.266667 |
|||
|
Inventory |
$ 75,000.00 | ||||
| # | Inventory Turn-Days | ||||
|
360 |
360 |
284 |
|||
|
Inventory Turnover |
$ 1.27 | ||||
| # | Accounts Receivable Turnover | ||||
|
Sales |
$ 150,000.00 |
42.85714 |
|||
|
Accounts Receivable |
$ 3,500.00 | ||||
| # | Accounts Receivable Turn-Days | ||||
|
360 |
360 |
8.4 |
|||
|
Accts. Rec. Turnover |
$ 42.86 | ||||
| # | Accounts Payable Turnover | ||||
Cost of Goods Sold |
$ 95,000.00 |
4.130435 |
|||
|
Accounts Payable |
$ 23,000.00 | ||||
| # | Average Payment Period | ||||
|
360 |
360 |
55.2 |
|||
|
Accts. Pay. Turnover |
$ 6.52 | ||||
References Top of Form
Esajian, P. (2018). Beginner’s Guide: Drafting A Real Estate Marketing Plan. Retrieved from https://www.fortunebuilders.com/drafting-a-real-estate-marketing-plan/
Bottom of Form
Forbes Council. (2018). 13 Marketing Strategies Real Estate Investors Can Use To Improve Their Business. Retrieved from https://www.forbes.com/sites/forbesrealestatecouncil/2018/03/05/13-marketing-strategies-real-estate-investors-can-use-to-improve-their-business/#2f76a2372172
Hiduke, G., & Ryan, J. D. (2013). Small business: an entrepreneur's business plan. Boston: Cengage Learning.
Magazine, E., & Turner, K. (2013). Start Your Own Staffing Business . Irvine: Entrepreneur Press.
