Cash Flow, Profit and Loss Account, Balance Sheet Essay

Introduction

Financial statements are used in business to give a summary of the numerous operations that has taken place during a certain period of time. In most cases, they are prepared yearly, half yearly, quarterly or any such period specified in their memorandum. The financial statements include cash flow, balance sheet, and Profit and loss account. They all disclose certain information that is relevant to its users. This paper focuses on a business start up and how these financial statements mean to my business.

My Business Venture

With the world population on the rise, there has been an increase in the number of young people. They are constantly buying products for beauty purposes. There are numerous products in the market; however I wish to start herbal cosmetic business. I aim to establish the business in the town centre.

The Balance sheet

This is a statement that equates owner’s capital and liabilities on one side and long-term assets and short term assets on the other. It is an account that shows the financial strength of the business. Trading account summarises the operation gain in a business and finally Cash Flow explain the differences between opening cash and closing cash. The following is first years, trading account, Cash flow and balance-sheet:

Trading Account

Balance sheet

Cash flow Statement

Market Size

The young, the old, the well to do in the society, and the poor will be my target customers and thus my market size will not be limited to any category of customers. I will produce product to fit all the above population groups. I will not limit myself to production of women or men products but I will produce products for both genders.

Market Place

The market segment, that the marketer want to target, will influence the distribution that he is going to use. Where the customer is more likely to be found should be the place that the goods are provided. If the target customers are people who value recognition, most of them are the high class, they are more likely to be found in the shopping malls and “designer” shops. If the products are targeting the lower class, they should be distributed in the supermarket that is expected to be less expensive than the shopping mall. These are found in the area that people of a certain class live. If the target is the low class, the goods should be available in the local slum and suburbs’ shops. If the target is for the middle class, strategies should be put to persuade them to try the products. The middle class are known to be looking for something extra at the same price. There will be no harm if the products are distributed in the competitors area, efforts should be the way we display what we are offering extra¹.

Sales Forecast

With improved quality and awareness, I expect that there will be an increase in the sales value; with time the level of my company’s sales will increase drastically. I will focus on total quality management and customer satisfaction to ensure continuity in my business.

Production or Key Operations

In my business I will be involved in the manufacture of herbal beauty products and cosmetics. I will require different teams with different level of expertise and production they are generally;

• Production team – it will consist of a production manager with three assistants, they will all be professionals in cosmetics and under them there will be twenty support staff.
• Support department – the departments which will be most active are human resource, customer care, and transport department. They will all be headed by experienced managers. For a start I will have the three as the major support department, they will duplicate on some issues.

Product Cost – How much is it going to Cost You, Materials and Labour?

The price that I will charge for my products will be the total cost involved plus a 25% gross profit margin. From a broader point of view the market can be divided into three sections; the high class, the middle class, and the lower class. The high class is not interested on how expensive the product is, but the point of interest is the utility that the product is going to give. When they are buying things they are looking for something extra that can make them feel special and different. The middle class buy the common goods in the market. When they are the target group, the price should be harmonized with the competitor’s prices. When the target is the lower class, price is the determinant of the market i.e. the lower the price the better. The products can be packed in smaller quantities at “lower prices”.

Sales Plan

To introduce my new products in the market, I will use promotion as my way to get in the market. Promotions are done in the effort to either introduce a new product or increase the market segment. To engage in a promotion, the first thing to understand is the availability of the target customers. Where are they likely to be found? Are they free in the mornings, is it in the afternoon? After realizing their availability and the fact that they can give you time to sell your products then it becomes important to know the age of the market. The behaviour of the youth is that they don’t want something that feels so common, let the promotion give a different good feel on the customer. If the promotion is for the introduction of a new product, then a lot should be invested in assuring the client of better quality than that offered by the competitor. The existence of opinion leaders should be evaluated. The customers are likely to follow the opinion leaders in making their decisions. The existence of groups in the society and their matching lifestyles can also be of great use².

Usefulness of Information Provided

After the company has started operating I will prepare financial statements. In companies, to report is a statutory requirement of many governments and they should be in line with an international Accounting Standards. They are both the external users and the internal users. The external users are the government, potential investors, and the statistics analyses among others. The employees of the company require this information to determine the capability that their employer has. In the hard economic times the employees require this information to interpolate the future of the business and are able to make any adjustment that may be relevant. The shareholders need these accounts to evaluate the way the business is run. They are able to know the dividend that they are likely to get. Whenever a company is getting loan from a bank, this are the accounts that are used to evaluate the credit worthiness of the company³.

For the accounts to be of help to the users, they should be made in such a way that they are understandable by the required user.

Bibliography

Eisen, P. Accounting. New York: Barron’s Educational Series, 2007.

Gary, A. and Kotler, P. Marketing: An Introduction. New York: Prentice Hall, 2010.

Harper, S. The McGraw-Hill guide to starting your own business: a step-by-step blueprint for the first-time entrepreneur. New York: McGraw-Hill Professional, 2003.

Footnotes

1. Gary, Armstrong and Kotler, Philip. Marketing: An Introduction. New York: Prentice Hall, 2010.
2. Harper, Stephen. The McGraw-Hill guide to starting your own business: a step-by-step blueprint for the first-time entrepreneur. New York: McGraw-Hill Professional, 2003.
3. Eisen, Peter. Accounting. New York: Barron’s Educational Series, 2007.