SMALL BUSINESS FINANCE ASSIGNMENT SAMPLE

8/10/2019 SMALL BUSINESS FINANCE ASSIGNMENT SAMPLE

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S2. 2014

Name: Kumar, Raynil

ID: S11088642

Name: Tita, Teibaibure

ID: S11075567

Name: Vakaloloma , Litia

ID: S11096586

Name: Versoni, Grace

ID: s11100093

S2. 2014

FM202 Group Assignment:

Sweet Cravings Scoop Shop


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Student plagiarism cover sheet

Statement of originality

Course: FM202

Names: ID Number:

Kumar, Raynil s11088642

Tita, Teibaibure s11075567

.

Vakaloloma, Litia s11096586

.

Versoni, Grace s11100093

.

We have read and understood the University of the South Pacifics, School of Management and

Public Administration policy on academic misconduct and plagiarism. We are aware of the

following: The view taken by the Head of the School of Management and Public Administration

is that failure to acknowledge or inadequate acknowledging the work of another will result in a

student receiving an official written warning and a mark of 0 for that piece of work. If the

plagiarism case is regarded by the Head of School of Management and Public Administration as

substantial (for example a significant failure to acknowledge a source) it will be forwarded to

the Student Development Committee of Senate (the Discipline Committee). The School of

Management and Public Administration has introduced a database of those students who have

been reported to the Head of School for plagiarism and the penalty that was imposed and that

repeat offenders (regardless as to the extent of the plagiarism) will be automatically referred to

the Discipline Committee. All members contributed equally to the completion of this

assignment.

We confirm that the work contained in the attached item of assessment is entirely our own

work except where we have specifically acknowledged anothers work and the source of that

others work.


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Part I Executive Summary

Sweet cravings scoop (ice-cream) shop is business partnership and will be owned and run

by Teibaibure Tita, Litia Vakaloloma, Raynil Kumar, and Grace Versoni. The scoop shop will be

located at a rented space in the busy USP cafeteria, Suva, Fiji. With a combination of debt and

ownersinvestments of about $8,100.00 in initial equity, the business hopes to successfully

establish in the given high-traffic location.

The business is anticipating to bring a wide variety of ice-cream, chilled drinks and

selected pastries to the USP cafeteria where it is currently not sold. Market offerings will

include a vast variety of flavors together with options for dairy and non-dairy ice-creams in

different sizes. With a selective marketing strategy, the Sweet Cravings intends to create a loyal

customer base through reasonable prices and additional healthy options mainly for students,

lecturers, and gym attendees who are our target market.

A forecast of business sales predicts a figure of $116,160.00 in the first year and rises by

$17,022.20 in the second year (Refer to Appendix, Table 1B). Sales forecasted are easily

achievable upon start-up according to the market research that have been performed.

According to predicted sales and expenses, net income is anticipated to rise to over $150,000 in

five years (Refer to Appendix, Table 2A). In addition to this, scenario analysis of the business

illustrates a positive net income can be achieved if sales volume do no drop more than 14% of

the forecasted figure (Refer to Appendix, Table 2B). Overall, Sweet Cravings scoop shop is a

feasible and profitable project to invest in, as given discount rate, terminal value and forecasted

cash-flows for 5yrs the business has a positive net present value (Refer to Appendix, Table 2)


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Part II Lessons Learnt

With the intention of getting additional advice and knowledge for starting our scoop or ice-

cream shop, we have conducted an interview with a business owner manager operating the

similar line of business to get a few ideas on how to manage our new business efficiently and

effectively.

The owner manager, Lady Mavis Ah Koy, who is in her early seventys,operates an ice-cream

shop called Sa Ula Ice-creamlocated at the Flea-market in Suva. The business is named after

her mother, referring to somewhat delightful, wonderful and attractive (Ahkoy, 2014). Although

she is wealthy, she enjoys the satisfaction of running a small ice-cream business to all various age

group who enjoy their ice-cream. She chose this line of business as it is easy to prepare and to

serve to customers. Sa Ula Ice-cream sells nine-teen (19) different flavors, in which the business

owner buys in bulk from her both suppliers, Tuckers and Tip-top (2014).

Above all, the lessons learnt from our interviewee to operate a small ice-cream business

effectively, by;

Minimizing costs in the least possible ways, by always being hands-on to watch

everything being done in a fairly way. For example, she mentioned about how for every

carton of ice-cream, there are certain amounts of ice-cream scope that needs to be made

in order to get certain profit out of it. If the money does not add up to the number of ice-

cream scopes, then the employee serving the ice-cream will have to pay from his/her

own pocket.


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Maintaining a healthy relationship with your supplier is important by paying them on

time in which may get you to receive discounts on certain items.

Maintaining consumer loyalty is another significant factor, in terms of how you

communicate and interact with them when they come in to buy, through advertisement

as well so that to attract them into the wide variety of different ice-cream flavors that is

available.

Not be too greedy when setting prices of for ice-cream. The selling price of an ice-cream

is sold at a reasonable price to target the average people. Again here the business owner

manager mentions that she can serve over 100-200 customers, in which may depend on

the weather or when people get paid.

In summary of lessons learnt, business is not always and only about money profits but above all

else the pleasure and satisfaction that comes from doing what you love consequently satisfying

the needs of people of all walks of life. For in efficiently and effectively operating a business in

which one has a passion for will result in happier customers, who in turn will become loyal

customer, and ultimately will mean more sales. As stated in a quote by General Electric CEO, Jack

Welch, Do what you do so well that they will want to see it again and bring their friends.

(Memoriable Quotes, 2014)." Lastly, for business to grow, it must diversify to selling other

products or invests into other shops.


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References

Ahkoy, M., 2014. Running an Ice-cream Shop [Interview] (12 9 2014).

Anon., 2014. Memoriable Quotes. [Online]

Available at: http://www.quantisoft.com/Articles/Quotes.htm

Fiji Revenue and Customs Authority, 2011. Resident Tax Rates. [Online]Available at: http://www.frca.org.fj/residents-tax-rates-2001-2012/

[Accessed 1 10 2014].

Peter McInnes, 2012. Peter McInnes. [Online]

Available at: http://www.petermcinnes.com.au/au/component/magebridge/vitamix-5200-brushed-

stainless

[Accessed 10 10 2014].

USP Commercial Operations Accountant, R., 2014. Price of Rent at Cafeteria [Interview] (1 9 2014).


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Appendix

Table 1A:START-UP Capital and Costs

Start-up Capital

Debt Financing 1,670.00$

Equity Financing 8,082.40$

Total Startup Capital 9,752.40$

Start-up Costs

Supplies (Office and operating) (200.00)$

Advertising (375.00)$

Accounting and Legal (400.00)$

Openning Inventory (6,184.40)$

Outside Services (100.00)$

Miscellaneous (400.00)$

Capital Purchases (1,993.00)$

Other Startup Costs (100.00)$

Total Start-up Costs (9,752.40)$

STARTUP CAPITAL & COSTS 2015


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Table 1B: Projected Monthly Cash-flows (Year 1)


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Uses of Cash

4.

Capital Purchases (Equipment). Basic equipment cost is estimated to be $1,993.00. This

expense includes:a. A 5200 brushed stainless steel vitamix blender for $$1,673 (Peter McInnes, 2012)

b. Commercial Water Urn for $70

5. Rent. Rent Payments are $1000/month (2x2 sq.meters @ $250 per meter) (USP

Commercial Operations Accountant, 2014)

6.

Advertising. Business-launch efforts upon start-up will include $375 worth of brochures

at .50cnts ea (Ahkoy, 2014).7.

8. Telephone and Utilities. FEA electricity) $200 per month, Water $30 per month, TFL

(landline) Vodafone & Digicel (mobile) bills estimated at $30 ea. per month (Ahkoy, 2014).

9. Business License Fee.The business license fee based on type of business operation.

10.

Insurance Premiums. $520 per month (Sun Insurance Business Asset multi-risk cover-

package. These premiums will cover any accidental loss)

11.Supplies Expense.This item includes all utensils needed within the shop. This will only be

bought once a year.

12.Revenue Tax. The amounts are calculated according to percentages laid out by Fiji

Revenue and Customs Authority and will vary each year according to business income (Fiji

Revenue and Customs Authority, 2011)

.

Chargeable Income ($)Tax Payable ($)

Social Responsibility Tax

0-16000

Nil

16,00122,000

7% of excess over $16,000

22,00150,000

420 + 18% of excess over $22,000


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50,001270,000

5,460 + 20% of excess over $50,000

13.Payroll. Wages total $15,620. No payroll taxes applicable as wages are below taxable

income amount. This amount includes the managers, cashiers, and kitchen hands

annual salary

14.Loan Payments (Principal and Interest). All of the $1,670 loan allocation will be used

during the first year of operations. Assuming this amount was available at the beginning

of the business fiscal year, interest at 6% totals $54.77. In addition, according to the loan

agreements, principal payment of $143.73 was also required. 11 monthly payments will

be made in first year, with the remainder paid in first month of second year. The total

payments for this category will be $1,779.54 (interest and principal).


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Scenario Analysis:

Table 2A: Base-Case

Table 2B: Optimistic Case

Justification: In an optimistic scenario whereby inflation kicks in, products prices would be higher

hence 14% increase in sales consequently increasing net cash-flow.

Sales 116,160.00$less Variable Cost 68,384.00$

Gross Profit 47,776.00$

less Fixed Cost 32,603.45$

EBIT 15,172.55$

less Interest Expense 74.84$

Earnings Before Tax 15,097.71$

less Income Tax

Net Income 15,097.71$Add Depreciation 264.45$

Net Cash Flows 15,362.16$

2. Expected

Sales (increase by 14%) 132,422.40$

less Variable Cost 68,384.00$

Gross Profit 64,038.40$less Fixed Cost 32,603.45$

EBIT 31,434.95$


Earnings Before Tax 31,360.11$

less Income Tax 9,780.11$

Net Income 21,580.00$

Add Depreciation 263.45$

Net Cash Flows 21,843.45$

2A Optimistic


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Table 2C: Pessimistic Case

Justification: In a pessimistic scenario whereby variable costs increase and sales decrease by 14%

due to a slack period, the net cash-flows will be negative.

Sales (decrease by 14%) 99,897.60$

less Variable Cost (increase by 7%) 73,170.00$Gross Profit 26,727.60$

less Fixed Cost 32,603.45$

EBIT (5,875.85)$


Earnings Before Tax (5,950.69)$

less Income Tax

Net Income (5,950.69)$

Add Depreciation 263.45$

Net Cash Flows (5,687.24)$

2B Pessimistic

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SMALL BUSINESS FINANCE ASSIGNMENT SAMPLE