The purpose of this business proposal is to describe the business type, its aims and objectives, the main activities, location, unique selling point, the reasons for creating this company, market environment, business needs, as well as rationale for the business, target market, customers, and key competitors.
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The entrepreneurs selected the name ‘The ABC Office Furniture and Stationery Store’ for this proposed business; however, the entrepreneurs will establish this private company in order to meet local market demand for office furniture and stationery.
The core business sector is the office furniture and stationery equipment industry, which also focuses on interior designing and on creativity to manufacture office furniture.
Business Idea and Main Activities
This office furniture and stationery business will be established to address all needs of the market in Dubai where the customers would be capable of purchasing their required products from its outlets at Sheikh Zayed Road; moreover, they will get the facility to order by using the company’s web portal (in which case the company will deliver goods instantly). The owners have already established a strong network of furniture and office equipment manufacturers in Germany and China who would supply the best products at the most competitive prices from Germany; the company will import the most well-known stationery items, while the Chinese suppliers will provide the best quality products at lowest prices with printed logo of ABCOFSS.
The product line of the business will consist of a variety of chairs with specially integrated characteristics to mitigate physical problems like neck, leg, hip or wrist pain; it will also offer tables for top executives, computer workstations (particularly designed for ergonomic set-up), file cabinets, conference furniture, display shelf, metal and veneer bookcases, traditional and veneer credenzas, and so on. At the same time, the stationery line is incorporated with computer accessories such as mouse, keyboards, glare screens, supports of monitor, power cords, flat cable, and other computer accessories including lighting, printing paper, cartage, recycled clipboards, erasable boards, and solar calculators; however, different categories of pens and pencils are also available in the outlet of the company.
Aims and Objectives
The aim of formulating this small business is to sell office furniture and stationery products to local businesses and to home office staff; however, it has aim to introduce an online platform to attract the modern customers and to become a profitable company by 31st December 2014. At the same time, this store is committed to provide quality products and outstanding customer care services to solve dilemmas and to please the clients. On the other hand, ABC Store has long-term objectives, such as, expansion of business in the international office furniture and stationery market, and vertical integration and merger with different companies to enter new market within the next five years of operation. However, the key objectives of this office furniture and stationery business are:
- To boost its profit margin per year by 8% and it to start new services from the second year of the business operation;
- At the same time, the owners have some commitment to save the environment of the indigenous locality; therefore, it will introduce environment-friendly operational activities from the third year of the operation;
- The owners will allocate 10% of the total profit for the marketing activity as it plays vital role to increase sales revenue;
- It will approve budget of 2% of the total profit of this store for research and development and it will increase budget by additional 1% from 2016. The main purpose to allocate fund for R&D is to assess market demand, customers’ choice, purchasing power of the customers and so on;
- This store will allocate funds for promotional tools by 5% from the very beginning of the operation
The entrepreneurs of this new office furniture and stationery store will need to find out an appropriate business location in the United Arab Emirates for setting up the store and carrying out the operation profitably. However, in this context, it is very essential to argue that the owners of this new business will have to survey the market of that location carefully in order to recognize and better understand the business atmosphere, traditions, demography, people, customers’ attitudes, and so on in order to run the operations successfully.
The store will be situated in the Sheikh Zayed Road of Dubai, United Arab Emirates, where the clients will get accessible transportation services; in addition, store will be of medium size, with outstanding conveniences for car parking; moreover, it will be in a position beside the road from where it is possible to have a clear view of the shop. A good position will make sure that the business will run profitably with a good flow of patrons, as people would be better aware of its location; however a map of the location in given in the appendix.
Unique Selling Point (USP)
The owners and marketers of this office furniture and stationery store will adopt five stage processes in order to assess the USP because the entrepreneurs are unresponsive to invest large amount for the loss projects. The R&D team of this store will identify unique characteristics of the products of this store by comparing with the products of the competitors, assess the emotional demand from the perspective of the customers, find out the limitations of the competitors, and so on; however, these procedures will help the management to avoid risks of investment in some extent.
This store will design a unique campaign plan to aware clients and to move forward as well as gain competitive advantages in the local office furniture and stationery market; moreover, it will design own website for this store, which will use for multi-purposes, such as, development of promotional tools and communication system, and introduction of online ordering and payment system. The selling point of this store is different in some extent from the existing local market players; therefore, the customers will get the opportunity to decrease their transport expenses along with carrying hazards. In this context, this shop will gain competitive advantage since the patrons will be inspired to purchase products from this store for getting easy system.
Porter’s five forces Analysis for ABC Office Furniture and Stationery Business
Bargaining Power of Suppliers:
Due to the presence of a huge number of retail businesses in this section of the industry, governmental strategy, changeableness of the cost of raw materials, global financial downturn, and deliverance expenses, the bargaining power of suppliers are quite high in a true sense.
Bargaining Power of the Buyers:
Bargaining power of the buyer is low as demand is tremendously high and the products are technologically developed and differentiated from those currently offered by rivals:
Threat of New Entrants:
It is important to state that threats of new entrants are comparatively little in the market of Dubai because of the existence of several obstructions to perforate the market; as a result, in the face of a reasonably elevated market demand it is relatively inflexible for the new entrants to confine a huge fraction of the market at initial stage. On the other hand, newcomers might see that it simple to enter if they focus on a small target market instead of focusing in the mass market; in the same way as numerous other business-sectors, the principal impediment to approach in this sector is the vast costs associated with setting up and continuing the operations within such an aggressive environment. However, it is significant to note that as the owners of ABC office furniture and stationery business are efficient, highly educated, and skilled, this company will not go through such characteristic inconveniences, such as short of competence, funds, and antagonistic rivalry just like numerous other newcomers.
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Threat of Substitutes:
The new shop has selected products like shelves, tables, desks, chairs, credenzas, bookcases, stand, cabinets, pen, pencil, eraser, highlighter, sign pens, scales, offset paper, chart paper, colors, rulers, inks, sharpeners, compass, protractor, calculator, notebook, cards, folders, pencil bags, files, scissors, glue, and many other items, which are already available in the market. Nonetheless, the threats of substitute products are moderate in this sector as the ABC office furniture and stationery business will offer a diverse product line under one roof; moreover, this business will also have online buying system, which would differentiate it from others. The risk of substitute products will therefore be moderate because of the business’s differentiation, and because of the fact that the products would be reorganized in accordance with the scientific revolution, market demand, and client preferences, ensuring that the offerings stand out from those of other competitors’ items.
It is notable that the market is highly antagonistic in areas of office furniture and stationery separately; however, ABC office furniture and stationery business has undertaken several steps to create a differentiation.
Reasons for creating this company
The entrepreneurs of this new venture are Abd Al Hamid, Abdul Aziz, Abdur Rashid, Hyder Hussein Ilyas, and Aliya Khatun. All these entrepreneurs have completed their higher education in business administration; now, they have decided to set up a company of their own in order to attain their individual goals. Three of these entrepreneurs possess great skill and knowledge in the specific business area where they want to operate, whereas two of them have conducted extensive market research in this industry. As a result, they want to set up ABC Office Furniture and Stationery Business as they possess enough competencies in due regards.
PESTLE Analysis or External Environment Analysis
In Dubai, the government’s regulations, taxation strategies, directives, norms of leadership and employment regulations are highly flexible for business; additionally, the political situation of the United Arab Emirates is tremendously peaceful and there is no political conflict because the monarch oversees the administration of the state. All the emirates assist each other in order to improve of the country and approximately every administrative strategy is undertaken to improve the business environment; on the other hand, Dubai is one of the most promising places of the country with remarkable expansion in corporate world; moreover, the maximum number of trading services are situated in this place.
According to the report of Shihab (5) and Indexmundi (1), the UAE was one of the least developed countries, but now it is developed countries as the government has used the natural resources properly, for instance, the economy of this country based on oil and natural gas resources. Nevertheless, Library of Congress (7) and Kothari (5) stated that the UAE became member of the World Trade Organisation in 1996, which introduced the facilities of the open market economy for the local and international companies; therefore, it became easy for the policy-makers to concentrate on the diversified economy though main source of national income is oil sector. On the other hand, about 80% of the total national GDP earned from Abu Dhabi, and Dubai (Library of Congress 7; Indexmundi 2; Rasanen 47; and USCS: Doing Business in the UAE 18); therefore, the owners of this stop have selected Dubai to start this store.
The social and cultural issues of Dubai comprise of an exceptional set of principles and credence, which does not correspond to any other nation in the planet; moreover, being a Muslim nation, the traditions of United Arab Emirates is oriented towards strict observance of Islamic Sharia. In addition, the inhabitants of the state comprises of people from diverse cultures and ethnic classes; as a result, while carrying out the business operations, the ABC office furniture shop must keep in mind the diversities in the social and cultural systems of the country in order to operate successfully in a smart manner.
Library of Congress (5) mentioned that Dubai Internet City is the largest ICT in Dubai, which introduced by the government in 2000 with intent to develop overall communication system and change online business environment; in addition, Vidican, Diana & Lisa (2) stated that technological development amplified the use of alternative solar energy. Moreover, the business of the ABC Office Furniture Store will depend on the information technology in some extent while the markets will use integrated marketing campaign using the opportunity of the multimedia to promote the store and attract the corporate clients.
The environmental condition of the UAE is the vital factors for this store because the designers have to design the workplace by taking into account such factors; here, the key concern of this industry is frequent sand and dust storms.
As one of the largest Islamic jurisdictions of the world, the legal arrangement of the UAE is based upon the conventions and laws of Islam; however, these conventions are more severe and harsher than any other judiciaries; as a result, it is important to state that in case of business, the government here has developed quite a liberal approach generally. In addition, Tarbuck & Chris (15) pointed out that any sort of prohibited corporate activities or misbehavior that do not conform to the societal customs are punishable; on the other hand, it is alarming that the courts of United Arab Emirates has merely one judge, where no overseas attorneys or overseas law firms are allowed. However, when carrying out its business, the ABC office furniture store will have to keep in mind that it will need to comply with all laws of the United Arab Emirates and federal laws of Dubai as well.
However, it is very essential to affirm that Dubai’s judiciary is based on civil law ethics (which is highly motivated by Egyptian commandment) as well as Islamic Sharia law (which is the leading code and foundation of the rule); in addition, no income taxes are imposed in UAE on local businesses (rather than petroleum businesses or overseas banks). Tarbuck & Chris (14) pointed out that even though Dubai has put forward a federal income tax scheme under Dubai Income Tax Ordinance 1969, it possesses no plans to execute it; on the other hand, Badam (12) further stated that there are numerous free trade zones in Dubai, which encompass different rules than the non free trade zones.
It is very important to note that the ABC office furniture store will offer all the items required by offices under a singe roof, starting from heavy office furniture to the simplest office stationery. For example, stationery would comprise of pen, pencil, eraser, highlighter, sign pens, scales, offset paper, chart paper, colors, rulers, inks, sharpeners, compass, protractor, calculator, notebook, cards, folders, pencil bags, files, scissors, glue, and so on.
However, there is no single business in Dubai or even in the United Arab Emirates that offer such extensive product lines under one roof, satisfying all needs of the offices operating here conveniently and easily. In addition, there also no such services those offer all these facilities through online and internet mechanisms, which indicate that no competitions will be there in the arena where the ABC office furniture and stationery shop will operate, due to its unique business idea.
Nevertheless, to be very specific, there are competitors in the market in terms of office furniture makers, and the key rivals in due regards comprise of companies such as Bafco, Naser Al Sayer and Company, Couture Furnituers Manufacturing LLC, Mahmayi Office Furniture, IKEA Dubai, Ottimo Office Furniture Factory, Al Istiqlal Furniture, Adityaa Furniture Manufacturing LLC, and Al Habbai Office Eqpt. In addition, there are numerous influential office furniture businesses, which, for example, include Ahmed Khouri Office Furniture Est, Al Areen International (Office Automation Division), Al Arbaah Office Eqpt Trading, Alintesar Wooden Products Factory, Dubai Mover Packer Shifter, Al Mawakeb Trading Company, Ricoh Europe Middle East, United Office Systems, Abu Tariq Furniture, Total Office, Anam Trading LLC, and Napoli Furniture Co. However, there are also several important firms that may pose strong competitions, for example, Office Furnishing Interior Solutions, Essa Raeisi Home Furniture Manufacturing, Green Sopt Furnishing, Aati Contracts Joinery, Real Planet Furniture, Al Hawai Office Furniture and Eqpt, Al Hawai Office Furniture and Eqpt, Art Matrix (UAE) LLC, Mobico Trading and Marketing, Module Decor, as well as MKO Facilities Management.
On the other hand, in case of the stationery shop division, there are a number of competitors in the market, and the key rivals in due regards comprise of firms such as Farook International Stationery, Craft and Stationery Shops, Al Huda Stationery Company, Al Ibtisam Stationery, Al Areen International, Al Fahidi Stationery Centre, as well as Al Furqan Trading Company. Additionally, there are abundant powerful stationery businesses, which may pose strong competitions; these, for example, comprise of Abdul Karim Dashti Nazad Stationery Materials Est, Al Hoshan Pan Gulf, Al Hoson Printing and Stationery Est, Al Jamal Library, Al Kashmiri Stationers, Al Furqan Bookshop, and AMJ Stationery LLC.
In United Arab Emirates, and particularly in Dubai, the government has made several areas free trade zones for all and as a result, there are a number of players operating in the same industry; nevertheless, in case of stationery materials, in every state of the UAE, there are huge numbers of operators, which also offer several online store facilities. All these shops continuously compete between each other in terms of cheaper pricing and better qualities to attain more clients; conversely, in case of office furniture segment, numerous such stores are available in Dubai; however, the rivalry is not that much powerful in case of ABC office furniture store, as it offers extensive product lines under one roof.
Target Market and Customers
The target market of the new office furniture and stationery business and its online service will be offices, headquarters, multinational companies, bistros, chain shops, construction agencies, supermarkets, airports, diverse production units, and hotels; conversely, the people Dubai and the entire United Arab Emirates will also be targeted because the stationery will be required by high school goers and college goers. Nevertheless, in this context, it is extremely vital to state that when making a decision regarding the business location, the owners must keep in mind all issues that would have an impact over the accessibility of the target market from the Sheikh Zayed Road of Dubai.
These comprise of matters such as the distance from the offices, headquarters, multinational companies, bistros, chain shops, construction agencies, supermarkets, airports, diverse production units, hotels, high school goers, and college goers; however, it is notable that the location is placed in such a method so that it is effortless for the major clients to come in touch with the business. This is because Sheikh Zayed Road is the heart of Dubai and the key businesses of the city are located over there, which means that those offices will be able to easily access the office furniture products offered in ABC office furniture and stationery business.
Evidence of Demand and Needs
The stop will be located in the Sheikh Zayed Road of Dubai, United Arab Emirates, where there are already the existence of several offices and businesses of national and international level; in one word, this road is the trading hub of Dubai. This means that all these offices would require numerous items for daily operations and all these requirements would be fulfilled by ABC office furniture and stationery business. It is expected that as the demands and needs of these offices are unlimited and there would be constant requirement of the advanced and modern office equipment in that area, the ABC Store would become highly profitable because of its position.
This office furniture and stationery business would comprise of two segments, namely, the office furniture and equipment segment, and the stationery business segment, which would in turn target two separate segments of the market. Even though, the offices would require the stationery, the students and ordinary people would also demand these.
Business needs and a rationale for the business
Strother (1) stated that products design is playing significant role to represent the organizational culture and it can increase the efficiency and productivity of the employees by changing internal environment of the workplace; moreover, it helps the business attract more customers. However, Strother (1) further added that the companies should decorate the workplace to demonstrate personality because the employees would expend a significant part of a day in this place; on the other hand, the job place should be comfortable and available enough facilities.
In this circumstance, the owners of the ABC Office Furniture and Stationery Business have realized the significance of the business in the Dubai market and showed their interest to develop business by taking this concept. In addition, the demand of office furniture and stationery products is comparatively high since there are too many small and medium sized business organizations in Dubai’s markets, which want to create a positive image and feel within the office.
Most of the cases, existing product, and service providers are not examining or visiting the workplace before supplying products, but the entrepreneurs of ABC Store focuses on office visit, as they know that the design of the office furniture should differ considering the corporate headquarters, office space, and the number of employees in the office and so on. However, the designer will send the template and design plan to the customers after visiting the office then the customers will choice one of the plans and order as well; ABC Store will supply the products within the deadline and give after sale service to the customers to solve any kinds of problems.
Here, it is significant to note that the office furniture and stationery store is not a unique business concept for the entrepreneurs while there are many competitors operate business with applying similar ideas; however, the owners of the proposed business will focus more on the creativity and quality in case of the product design. At the same time, this store will combine the traditional corporate furniture models with the newest models to design products since the customers may have different choice considering different age group, purchasing power, social and cultural background, location of the company, nature of the business and so on.
This store is committed to offer diversified and quality office furniture and stationery products with competitive price to meet the requirements of the clients by providing the modern-day office environment for which the employees will not differentiate between work and home life. At the same time, the ABC Store will offer different office furniture, solutions, and stationery products considering the budget and priorities of the owners of different business organizations; however, this store will recruit efficient and creative designer to offer the very best fashionable office furniture.
|Business Area||Research Methods||Data Collecting tools||Type of Data||Source of Data||Date||Expected results|
|Market Environment: |
|A mixed research method will be used to collect and analyze data||The owners will use internet to find out articles, journals, books, national statistics, and so on;||Different statistics and |
descriptive data on economy, and social issues will be used
|Collect data from secondary data sources, such as, Indexmundi, Library of congress and so on||From the first week of November 2013||The owners expect that Dubai market will be suitable to start business|
Use attachment 01 from assessment 04 to plan for this section.
|A mixed research method will be used to collect and analyze data||The owners will prepare a questionnaire and use it to collect primary data through interview of the selected companies||Mainly focus on the qualitative research method to assess the position of the competitors||Focus on both primary and data sources||From the third week of November 2013||There are many competitors in Dubai Market, but most of them dace obstacles like lack of capital|
Evidence of demand & needs
|A mixed research method will be used to collect and analyze data||The owners will prepare a questionnaire and use it to collect primary data through interview of the target population||Both quantitative and qualitative research method will be used to find out the demand of the customers||Concentrate on both primary and secondary data sources||From the first week of December 2013||The customers are willing to get products with exclusive design and comfortable products at affordable price|
|Business Needs: |
|A mixed research method will be used to collect and analyze data||The entrepreneurs will collect data using questionnaire and direct interview method from the target groups||As multiple areas are needed to be covered, it should require to consider both quantitative and qualitative research method will be used||Focus mainly on the primary data source, but secondary data source will use to coordinate the result||From the third week of December 2013||The existing competitors provide products without focusing customers’ need for which this store will offer proper solutions for the customers|
Plan on data collection and incorporation into a spreadsheet to display for raising capital in a business plan
Every start up business must make projections to capture what is likely to happen once it rolls out. This section will look into the ABC Office Furniture & Stationery Store to determine its start-up requirements, operational requirements, and an appreciation of costs. It is also critical to know the source of financing for these requirements. Businesses consider various options that are discussed in this section. Lastly, the author appreciates the need for activity based costing in calculating costs.
ABC Office Furniture & Stationery Store start up requirements will include an Office, office furniture, office equipments such as laptops, building improvements and remodeling, licenses, Deposits, fees, website, starting inventory, among others. To purchase these, starts up finances are a major requirement. Every organization that seeks for a loan has an investment project. Loan applications are made by entities with deficit finances, to entities with surplus finances. Lending institutions can be commercial banks, hedge funds, and central banks (Drever, Santon & McGoan, 2007). The lending process begins with an application made by the borrower to the lender. The lending institution, upon receiving the application, conducts an approval process to ascertain qualification of the borrower for loan consideration. The main areas of concern are credit assessment, business assessment, and capacity to pay (Drever, Santon & McGoan, 2007).
In the case of ABC Office Furniture & Stationery Store, financing is obtained from the owners who subsequently obtain equity in the business. Additionally, the business takes both a short term and a long-term loan to finance operations. The business will also have to adhere to the laws of UAE in financing, start-ups and contracting.
Operational requirements are the organizational needs that keep a business going. Labor, materials, rent, insurance, utilities, advertising, legal/accounting are some of the requirements that ABC Office Furniture & Stationery Store will have to grapple with. The projections of some of these requirements are detailed below.
Totals Costs for Various Workers
|ABC Office Furniture & Stationery Store |
|ABC Office Furniture & Stationery Store|
The operational requirements will also contribute towards the preparation of the three main statements.
The following will be the major costs incurred by ABC Office Furniture & Stationery Store in the running of the business. They include Officers salaries, Other payroll, Payroll taxes, Employee benefits, Advertising, Commissions, Depreciation, Insurance – liability, Insurance – casualty, Legal and accounting, Rent, Supplies, Telephone/Utilities, Repairs/Maintenance, Payroll service and State franchise tax.
The costs are calculated monthly and accumulated on an annual basis. Additionally, to arrive at a gross margin manufacturing costs have to be factored. Many methods are used to arrive at these costs. ABC Office Furniture & Stationery Store will use activity-based costing. However, getting to know the unit overheads was troublesome since that is insider information. Hence, I capped the gross profit margin at 50%, which was consistent with many industry players’ financials (Drever, Santon & McGoan, 2007).
Activity-Based Systems determine the real cost of an overhead before assigning the costs to such activities. Therefore, a company allocates costs to those units that require the activity. The approach appreciates the fact that at any point, the company’s activities will occasion cost, which will vary with production levels. Therefore, the costs should be assigned to the products that require such activities to arrive at a more accurate measure (Drever, Santon & McGoan, 2007).
The distinguishing feature of Activity Based Costing is that it links the output of the manufacturing entity to the cost of all activities involved in production. Value added activities could be determined using this approach. The manufacturing entity can proceed to eliminate activities, which are not adding value to the product. This will improve the manufacturing system’s performance (Drever, Santon & McGoan, 2007).
With activity-based costing, you take all activities required to produce an item into consideration. This can include R&D, testing, purchasing, set up of machines, packaging, and cleaning and maintenance. These are all necessary to produce an item; however, they may not be taken into consideration when using the traditional method of costing (Drever, Santon & McGoan, 2007).
Plan on the spreadsheet implementation in stage 2
This section looks into the four main statements. They include the Cash Flow Statement, Income Statement, Balance Sheet, and Breakeven Analysis. It looks at the definition, their usage, and ranking (i.e. which one ranks higher than the rest). This means which one would a company consider more important than the rest. The section also delves into the periodicity of each of the statements, how many sheets will be required to prepare them, and the manner in which they will be tabulated. Lastly, this apart will show examples of each of the statements and a diagram that will indicates their relationship with each other.
Definition of each statement and responsibility
Profit and Loss Statement
According to the projections, ABC Office Furniture & Stationery Store will make profits ranging from 2% to around 18% in the first year of operation. However, it is crucial to note that operations are not at their peak in terms of optimum employees and revenue potential. Hence, the business will make more profits and costs will increase. With a gross profit level capped at 50%, the business adheres to industry standards in the manufacture and sale of modern office furniture and stationery. I have assumed that the products I have selected will form 70% of the business and is representative of the business operations (Helfert, 2007).
Sales projections are on the lower side and are hugely informed by the performance of the other Office Furniture provision companies in the region. The percentage increments are per the performance of industry comparatives. Costs are determined based on the industry prices for the listed commodities. The commodities will form 70% of the goods to be sold by ABC Office Furniture & Stationery Store. Hence, they are representative of the whole business.
The advertising expense will vary across different media. This includes Newspaper, TV, Radio, Magazines, Personal marketing, Online, among others. All these channels will accumulate a total advertising expense of $5,020 at the end of the year. Another major expense will be the payroll for different workers. Overall, this will constitute an expense of $ $20,729. The payroll does not include payment to officers who are the managers.
A balance sheet indicates the financial position of a company at the end of an accounting period. It is also known as the Statement of Financial Position. The total assets and liabilities of the company amount to $ 48,256. The company is in a strong position financially as indicated by the Statement of Financial Position. The greatest liability is owners’ equity that stands at $ 10,000 and accounts payable at $6,879.
For the purpose of the preparation of projections, the company has considered six products as representative of 70% of the possible future sales in the business. The products are Executive seats, Executive computer desks, Boardroom tables, Executive office cabinets, Waiting room chairs, and Executive leather lounges.
Cash Flow Statement
Cash Flow Statement indicates the viability of a business to run its operations without running into financial problems (Hooper, Davey & Presscot, 2009). It is determined by cash inflows and cash outflows. According to ABC Office Furniture & Stationery Store projections, the company will be able to run its operations successfully. However, the first 11 months will have negative cash flows. December will record a positive cash flow as indicated in the excel file.
Therefore, the company will not have to borrow or require its members to contribute paid-in capital. The ending balance cash flow is $2,059 (Hooper et al. 2008). Cash Flow Statements are the most fundamental projections in starting and running a business. A business may make losses but still have the capability to run its operations. A running business with negative cash flows or a negative ending balance in the cash flow statement is declared bankrupt (Drever, Santon & McGoan, 2007).
With the current level of debt, additional debt finance would reduce the power of the company’s management to control decision-making processes. However, high levels of debt finance reduce the flexibility of a company to respond to sudden obligations, the company has enough liquid assets to meet unanticipated obligations. Therefore, as a lender, I would consider lending the required amount to the company, because, there is enough evidence that the company will service the full loan amount within the required period otherwise, the company has enough assets to act as security for the loan.
Breakeven point is the point at which a new business recoups its investment. In accounting, it is calculated in many forms (Friedlob, 2010). However, in this particular case, the breakeven point is calculated using formula below:
Breakeven point = (Total expenses-Interest Expense)/ Interest Expense
For sales to break even, the following assumptions have to apply (Operating expenses + Interest Expense are assumed to be fixed; Cost of sales is assumed variable) (Drever, Santon & McGoan, 2007). In the ABC Office Furniture & Stationery Store case, sales to breakeven will be $ 109,738 as indicated in the Excel sheet. A business should not take too long to breakeven. In this case, the breakeven sales are achieved in the tenth month (Drever, Santon & McGoan, 2007).
Number of periods in the statement
All the statements (i.e. Cash Flow Statement, Income Statement, and Balance Sheet) can be reviewed as frequently as possible. However, it is more representative to analyze them annually as more information means better analysis. However, breakeven analysis is a one off statement that looks into the period within which an investment recoups. Additionally, since all the statements will use monthly data, it is possible to analyze the information on a monthly basis (Drever, Santon & McGoan, 2007).
Number of sheets required for each statement
The sheets required for each statement will be as follows.
|Cash Flow Statement||1|
However, the sheets are going to be interlinked with the data sources to bring about a better picture and to appreciate where ABC Office Furniture & Stationery Store will obtain its data.
The statements in tabulating the fees
The statements will be critical in tabulation of fees. The will use all the available raw data to come up with comprehensive statements that critically analyze the information available. For instance, a Balance Sheet will indicate many things including the strength of the company to borrow. A cash flow statement will include the money in and money out by tracking monies in the organization. Lastly, the income statement will track all expenses, revenue and determine whether the business is making profits or not (Drever, Santon & McGoan, 2007).
The importance of the statements
The most important statement is the cash flow statement. It indicates the manner in which money comes in and goes out. The company to determine financial strength uses the statement. A negative ending balance in a cash flow statement indicates a business in need of more money to meet operational costs. Such a business may even be declared bankrupt. Hence, ABC Office Furniture & Stationery Store should prioritize the preparation of this statement.
Examples of each sheet
Examples of the sheets will be attached as appendices. They are prepared for a period of 1 year to indicate many aspects about the business. ABC Office Furniture & Stationery Store has not started and the examples are just projections.
A diagram of sheets interactions
The diagram below shows that the three statements are interlinked since information in either of them can be used in the other. However, to conduct a breakeven analysis, ABC Office Furniture & Stationery Store requires information in all the three statements.
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Hooper, K., Davey, H. & Presscot, S. (2009). Conceptual issues in accounting: A New Zealand perspective. Melbourne: Cengage Learning.