Business Description
Product
The proposal resides in founding a small family bakery as the additional source of the household’s income. The offered product is a high-quality homemade bakery that meets the current demand for healthy home cooking. The line of products will include ten items: plain rolls, three types of patties, three types of donuts, two types of pies, and muffins.
The number of employees comprising the workforce is limited to twelve people:
- A manager
Key responsibilities: production control, schedule planning, tasks assignment, quality control, supply management
- An accountant
Key responsibilities: accounts keeping
- Head baker
Key responsibilities: quality control, implementation of new recipes, menu development
- Assistant bakers (2)
Key responsibilities: fulfilling the head baker’s assignments, dishwashing, basic janitorial tasks
- Waiters (2)
Key responsibilities: performing cash operations, serving customers, keeping the dining area clean and tidy.
- Delivery men (5)
Key responsibilities: performing basic supply operations, carrying out home delivery orders
All the staff members are supposed to receive relevant training via express baking courses.
Form
The proposed entrepreneurship is a small family business. The principal form of potential operation is a bakery shop. However, the project also includes organizing a sitting area inside and outside with a total amount of 15 tables (each table is supposed to accommodate 4 people). The competitive advantage is supposed to be gained through the beneficial pricing policy, the moderate number of similar offers in the area, the increasing demand for healthy food and homemade production and the supply chain. The advantage of the latter resides in the prospects of purchasing the major part of ingredients from the local farmers.
The number of the necessary equipment units is rather limited: an oven, a proofer, two refrigerators, two freezers, mixers. Some of the enlisted items can be taken on lease from the local restaurant suppliers to minimize the entry costs.
The targeted period of the preparative stage is two-three months.
Accounts
According to the preliminary calculations, the total budget required is 78,100 dollars. The detailed accounts can be studied in the table below.
Table 1 “Total Budget”.
The proposal has a supplementary option that implies additional expenses for a marketing campaign. The expected cost is $1,000 roughly. It is presumed that the advancement measures will be beneficial for future performance, and the expenditures will be repaid within 1-3 months. The detailed calculations of the marketing expenses are represented in the table below.
Table 2 “Management Expenses”.
Implementation of Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) Accounting Methods
With a regard to the form of business stated in the relevant proposal, it is assumed that there will be no obligatory duty to implement the Generally Accepted Accounting Principles (GAAP) into the account reporting structure. Thus, the relevant system mainly specializes in banking, broadcasting, government contractors, mortgage banking, and computer software developers to name but a few (Everingham, Kleynhans, & Posthumus, 2007).
Nevertheless, one might have to incorporate International Financial Reporting Standards (IFRS) Accounting Methods. To generate an effective strategy of a conversion process, one plans to complete several preparatory stages: data gathering, resource determination, plan implementation, process regulation, and quality monitoring. According to specialists, these preliminary measures enable one to carry out a balanced and successful implementation of the IFRS in the company’s operation (Needles & Powers, 2012).
The adaptation of the IFRS Accounting Methods is supposed to be carried out following the guidelines for the first adaptation. These guidelines are specifically designed for beginning entrepreneurs to facilitate their accounting managing and eliminate potential risks and difficulties (Bragg, 2011). It is presumed that the relevant standards will assist in ensuring transparent financial operating, and sustainable accounting. Moreover, the standards will serve to be a consistent framework for the company’s financial activity that is of critical importance for an inexperienced entrepreneur.
Pro Forma Balance Sheet
The pro forma balance sheet represented below is based on the preliminary estimations and the analysis of the statistical data available in the relevant segment of the market. Therefore, it is essential to consider a possible deviation in the provided figures. It is, likewise, necessary to note that the balance sheet is worked out with the prospect of one year. The presented estimations are carried concerning three segments: assets, liabilities, and owner’s equity. The results may be viewed in the table below.
Table 3 “Pro Forma Balance Sheet”.
The analysis of the data requires a series of clarifications. First of all, the long-term assets included in the balance sheet imply such aspects as equipment, leasehold improvement, vehicles. The purchase prices that constitute the base of the calculations were retrieved in the course of the market’s examination. Secondly, the current liabilities are represented by a minus index since an entrepreneur will have to take a loan. Therefore, the minus is aimed at signifying the debt status. Lastly, the equity section provides data on the current state of the owner’s budget. The figures represented in the table are approximate, thus, some alterations might be required in the course of practical operation.
Income Statement
While preparing the relevant income statement, one tried to focus on the accuracy of the data presented, nevertheless, it is critical to note that the figures in the statement reflect the expected amounts in every segment. According to the standards in financial accounting, an income statement shows the results of profits and losses in the framework of a particular period (Stickney, Weil, Schipper, & Francis, 2009). As well as in the previous case, one set the framework of one year. Therefore, one should consider potential derivation that occurred due to the lack of previous experience that one could have relied on in the course of the income statement’s development. The approximate calculations might be viewed in the table below.
Table 4 “Income Statement”.
It is essential to provide some clarifications regarding the figures presented in the statement. Firstly, the other income section implies the gains from the fixed assets. The administrative expenses section includes a series of costs: salary of the employees, legal and professional charges, and the rent. The financial charges, in their turn, reflect the interest expense on loans. Moreover, the income tax section was calculated following the current tax charges that exist in the small business market (Keating, 2013).
Internal Controls
In the framework of internal control, the implementation of additional measures is proposed. The principal aim of these measures resides in assuring the viability that is critical for effective business performance. The first internal control procedure suggested is the segregation of duties. It is assumed that to create an environment favorable for productive operation, an entrepreneur should see to the fact that the physical handling of assets is separated from the accounting for these assets.
In other words, an employee at the checkout should not be in charge of keeping accounts. The relevant approach will assist in eliminating the possibility for employees to perpetrate fraud as well as to conceal it. According to statistics, small businesses are particularly likely to experience financial losses due to the neglect of the relevant control measure (Porter & Norton, 2016). Therefore, one is determined to avoid the common mistake typical of beginning entrepreneurs and ensure the segregation of duties in the company.
Another internal control measure proposed is the safeguarding of assets and records. The estimations represented above show that the entrepreneur will have several valuable assets, the damage or stealing of which will lead to significant financial losses. Therefore, it is vital to ensure consistent protection of all the assets and accounting records in the company.
Challenges
The implementation of the internal control procedures described above needs careful consideration. It is expected that the segregation of duties is likely to meet some challenges due to the small number of the company’s workforce. Thus, for instance, it will be problematic to assure that ordering inventory and receiving it is carried out by different employees. Nevertheless, it is recommended to follow the principle of the major distinctions in employees’ responsibilities pointed out by specialists: physical custody of assets, processing, and recording of assets, and approval of transactions (Gelinas, Dull, & Wheeler, 2014). The principal concern of an entrepreneur is, consequently, to see to the fact that these duties are carried out by different people.
As to the safeguarding of assets and records, it is assumed that the implementation of this measure will not meet critical difficulties. It is suggested that cash protection is ensured with the help of lockboxes, safes, and cash registers. Moreover, it is recommended that the inventory is kept in the specially-designed storage areas with strictly limited access. Lastly, it is crucial to protect accounting records from potential misuse.
Therefore, it is proposed that all the records are computerized and can be accessed by a limited number of employees. The limitation of the access can be reached through the employment of identification codes and passwords. The only challenge that one might meet, from the perspective of assuring the safeguarding of assets, is that this control procedure will require extra expenses.
Reference List
Bragg, S.M. (2011). Wiley GAAP: Interpretation and Application of Generally Accepted Accounting Principles. Somerset, New Jersey: John Wiley & Sons. Web.
Everingham, G.K., Kleynhans, J.E., & Posthumus, L.C. (2007). Principles of Generally Accepted Accounting Practice. Cape Town, South Africa: Juta and Company. Web.
Gelinas, U.G., Dull, R.B., & Wheeler, P. (2014). Accounting Information Systems. Mason, Ohio: Cengage Learning. Web.
Keating, R.J. (2013). Business Tax Index 2013: Best to Worst State Tax Systems for Entrepreneurship and Small Business. Web.
Needles, B.E., & Powers, M. (2012). International Financial Reporting Standards: An Introduction. Mason, Ohio: Cengage Learning. Web.
Porter, G.A., & Norton, C.L. (2016). Financial Accounting: The Impact on Decision Makers. Mason, Ohio: Cengage Learning. Web.
Stickney, C.P., Weil, R.L., Schipper, K., & Francis, J. (2009). Financial Accounting: An Introduction to Concepts, Methods and Uses. Mason, Ohio: Cengage Learning. Web.