CVELP: Assignments: Accounting

• OVERVIEW
• Course Material
• Assignments
• Schedule

This section of your business plan is comprised of three very important financial documents: a Monthly Cost of Living Statement, A One-Year Cash Flow Projection, and the Sources and Uses Explanation of the amounts you listed on the One-Year Cash Flow Projection. Use the attached samples as a template to create your own version of these three statements.

TIPS FOR COMPLETING THIS ASSIGNMENT

• Common sense is the key for completing this assignment. If you are not sure of how to determine a cost, conduct some research. For example, if you know you are going to need magnetic signs for your vehicle, call a few sign companies and ask for estimates. Or, if you don’t know the cost or type of insurance you’ll need for your business, contact an insurance agent and ask for some advice and a quote. If you only have an estimation of some of the general costs you will incur in the first year, that’s fine. You can always update your plan once the figures become more concrete.
• If you are still unsure on how to complete this week’s assignment, you can get help by e-mailing your coach with your specific question(s).

FREQUENTLY ASKED QUESTIONS
Why should I complete a Monthly Cost of Living Statement?
Your personal financial picture is the foundation for the financial health of your business. This exercise answers two very important questions for both yourself as well as any prospective lenders. First, it makes you examine your monthly expenditures. This can often expose problems that, once corrected, can improve your personal cash flow. Second, it helps you determine if an owner’s draw is needed from the business and provides a realistic amount for the draw.

Some of the items listed in the One-Year Cash Flow Projection do not apply to my business. Should I still list them and put a “$0” in the amount column?
The simple answer is no. However, you must make sure that your business plan has an explanation or the information that explains why the item isn’t there. For example, if you do not show any property purchase or lease amounts, there should be a clear explanation in your plan such as:

“ABC Services is a home-based business located at 1234 Main Street”

Or, if you do not show a figure for accounting:

“The owner’s sister is a local CPA and has agreed to provide free bookkeeping, consulting and tax preparation for the first three years of business.”

Sources of Cash

1. Personal Funds. The owner will invest $75,000 into the business.
2. Loan Proceeds. The owner will borrow $75,000 from Valley City National Bank as a five-year revolving line of credit at 10%. Interest will be charged only on the amount actually borrowed with principal payments of 20% of the amount borrowed due semi-annually each year.
3. Cash Receipts From Business. $154,000 in cash receipts net of sales taxes is estimated. This projection involves selling 10,000 single scoop cones, 5,000 single scoop cups, 6,000 double scoop cones, 4,000 double scoop cups, 5,000 double scoop waffle cones, 4,000 sandwiches, about 5,000 soft drinks, and about 2,000 cups of coffee plus apparel, breakfast items, and other foods and beverages. The business anticipates that each customer will spend approximately $4.50. The expected sales of $154,000 divided by $4.50 equals approximately 34,220 customers per year. The business expects to be open 360 days during the year so this is an average of about 95 customers per day. This is a conservative estimate of cash receipts. The Institute estimates that the industry average cash flow in 1997 for a start-up ice cream parlor was $194,000.

Uses of Cash

4. Equipment. Basic equipment cost is estimated to be $32,200. This expense includes: dipping cabinets, refrigerators, tempering freezer, display freezers, holding freezer, three-compartment sink, ice machine, stove, serving equipment, dish washing equipment, and equipment installation.
5. Vehicle Purchase/Lease. A utility van will be leased at $360/month for three years from Valley City Motor Sales, a total of $4,320.
6. Real Estate. Real estate expense is included in lease expense.
7. Fixtures. Fixture costs will total about $9,300 based on an estimate from Valley City Restaurant Fixtures Supply, Inc. These costs will include purchasing tables, chairs, and removable service items.
8. Security Deposits. Security and other deposits will include $5,000 for lease-related deposits, $2,000 for utility deposits, and $2,000 for miscellaneous deposits for a total of $9,000.
9. Signs. Fast ‘n Fresh Premium Ice Cream will have extensive Riverside Faire approved signage on all four side of the building. Signage and installation will cost $9,200 according to an estimate by Valley City Quality Sign Co.
10. Leasehold Improvements. Net leasehold improvements after the $10/sq.ft. allowance by the landlord will total $7,500. This estimate was provided by Smith Construction of Valley City and includes floor and wall coverings, window treatments, painting and decorating, window decorations, and miscellaneous minor improvements.
11. Cost of Goods Sold. Cost of goods sold is based on the sales projection of $154,000 and is estimated to be an average of 34% of sales totaling $52,360. This information was provided by an industry trade journal, Ice Cream News.
12. Telephone and Utilities. Valley City Gas, Electric, and Telephone Company estimate telephone and other utilities at $400/month for an annual total of $4,500.
13. Lease/Rent. Lease payments are $4,500/month ($3/sq.ft.) plus $275 for Common Area Maintenance (CAM) fees for an annual total of $57,300. The first year lease cost is $40,500 reflecting the three months free rent allowance ($54,000-$13,500). The CAM fees must be added to this amount for a total of $43,800. This information was provided by the commercial real estate agent representing Riverview Faire.
14. Business License Fee. The business license fee based on business revenue (2% of gross revenue) will be $3,080 (License and Permits Office, Valley City).
15. Insurance Premiums. Goldsmith Insurance Agency, Valley City, estimated annual premiums at $6,000. These premiums will cover business liability, property damage, workman’s compensation, and all other types of insurance.
16. Office Expense. This item includes all office-related expenses including copying and paper supplies. The owner will perform office duties. Total is estimated at $1,000 annually based on the owner’s previous experience.
17. Legal and Accounting. Jerome and Associates, CPAs, and the Jensen, Barker, and Symthe law firm will provide basic bookkeeping, accounting, and legal services. Jerome and Associates, CPAs has a bookkeeping subsidiary, Personal and Business Bookkeeping LTD that specializes in low cost bookkeeping. This firm will be engaged for the bookkeeping with Jerome and Associates providing tax preparation and other professional services. The total estimated annual cost is $5,500.
18. Advertising and Promotion. $9,000 will be allocated to the advertising and promotion campaigns discussed in the Marketing section above.
19. Real Estate and Other Taxes. Real Estate and Personal Property taxes will total $3,700/year. The Management Office, Riverview Faire, provided this information.
20. Miscellaneous Expenses. $6,000 has been estimated for miscellaneous expenses based on information provided by the Institute.
21. Payroll Taxes and Benefits. These are estimated to be $11,500, 25% of wages. Source: Valley City Employers Association.
22. Payroll. Wages total $46,200. This total includes 126 winter workdays, with one employee working 5 hours a day at $6.50/hour. It also includes 217 summer workdays, with two employees each working five hours a day at $6.50/hour. Payroll includes the manager’s annual salary of 28,000. Payroll also includes FICA and employee benefits, at 25%.
23. Loan Payments (Principal and Interest). All of the $75,000 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 10% totals $7,500. In addition, according to the loan agreements, principal payment of $15,000 was also required. One semi-annual payment of $7,500 will be made during the fiscal year while the second payment will be made at the beginning of the second fiscal year. The total payments for this category will be $15,000 (interest and principal).
24. Owner’s Draw. This information was obtained from the Monthly Cost of Living Statement, and is $2,070 per month or $24,840 annually.

Accounting_homework.pdf - 5 pages