Discuss the reliability of forecasting using methods, such as regression analysis.

School of Accounting
Planning and Control for Small Business Enterprises

CASE STUDY ASSIGNMENT
This case study will cover the following areas of Small Business Enterprise (SBE)
Considerations in Starting a New SBE
Financial Preparation
Planning for Growth
Planning for Retirement
OUTLINE OF CASE STUDY:
You are working within a team of small business consultants, ‘Kinematic Consulting’. Your previous duties required you to report to a manager who has mentored you for the last 12 months. You will now be taking more responsibility and consult closer with clients.
This month you will be introduced to a client, Anthony Newmanzer, who is eager to start new business in a rented workshop/warehouse. His business name will be Paint Pleazer.
Anthony’s new business will involve his services as a spray painter of various motor vehicles, as well as, the sale of his new and unique paint products.
The product:-
Will have a brand label named Paint Pleazer, which is the same as his business name.
Has been specifically developed for motor vehicles, including motor bikes, cars, vans and trucks.
Will be unique as it doesn’t leave drip marks and is easy to apply. Therefore, appealing to a wider range of customers including individuals for personal use or for other small business owners in the motor vehicle industry
Is created by mixing purchased chemicals on his premises and poured into containers for sale or for his own business use.
Is to be used by Anthony in providing his own spray painting services in his rented workshop/warehouse.
Will also be sold separately in 1 & 3 litre containers at his physical business location or online.
Can be easily used for vehicle repairs after accidental damage and/or for vehicle artwork.
Is non-toxic and non-flamable
Is applied with special equipment that Anthony has already purchased for $19,800

Anthony is planning to open his business by the 1st November this year.

Anthony needs guidance and support so he has made an appointment to see your manager for advice. Your manager will be introducing you as Anthony’s consultant and point of contact for Kinematic Consulting.

SECTION ONE – UNDERSTANDING THE SMALL BUSINESS ENVIRONMENT (7 MARKS)

To impress Anthony at your first meeting, you have prepared a report that will demonstrate your understanding of his business, the industry and knowledge about starting a new business enterprise. This information should be relevant so that it will assist Anthony in making the best business decisions at this early stage of his Business Cycle.

REQUIRED:
Provide a report extract that includes only 4 of the points listed below from 1 to 13.
As it is an extract, do not include a title page, executive summary, contents page etc. Maximum of 2 one-sided pages (1 x A4 pages both sides)

Choose only 4 points from below and include only these 4 points in your report extract. Information must be specific to the type of business that Anthony is setting up.
Description of the business, targeted customers & physical location
Current issues that may affect his type of business
A SWOT analysis, including his competitive advantage
A marketing analysis – Discuss methods of advertising & promotion, frequency of marketing. Also discuss where the point of sale will be made for Anthony’s services & paint products (eg online or in store).
Business structure considerations for his circumstances – brief advantages and disadvantages
Costing process – Discuss how he will determine prices for his paint service/s and paint products
E-Business considerations – Promotion online, website registration required, suitable methods of receiving payments, security, webinars
Appropriate insurances – Mandatory and optional
Considerations of legal requirements
Aware of Anthony’s environmental friendliness, list some aspects of environmental considerations that he can consider
Briefly list some key performance indicators that can be used at start-up for this business.
Labour obligations. Requirements to consider when employing staff. You will also provide Anthony with a link to the Fair Work Website.
Record keeping and compliance – BAS, PAYG, GST and who would be responsible

SECTION TWO: FINANCIAL PREPARATION & ANALYSIS – BUDGETING (30 marks)

Starting a new business is not easy and financial preparation and analysis is necessary.

Anthony is aware that a large proportion of new small business enterprises in Australia fail in the first few months of operations. Lack of planning, little knowledge of business costs and the associated lack of cash flows are the most cited reasons of failure.
Anthony approaches you for further assistance. He wants to learn about the process of operational planning by understanding the true costs of his business, in particular, labour costs, fixed and variable costs.

Budgeting for Labor Costs (Worksheet 1: Payroll Budget)
Anthony decided not to pay himself a wage until his business begins to make a net profit of 10% of Gross Total Sales. How wage would be based on the minimum award wage rate. (Note: If Anthony sets up as a sole trader then he will withdraw money as drawings from his bank account based on the same amount as the minimum award wage). Meanwhile, he will fund his living expenses from savings.

Anthony will be employing 3 people starting from the 1st November.
Part time receptionist bookkeeper under the age of 18 years.
One casual spray painter (a friend who is retired and can fill in when required. He will not work weekends)
One full time apprentice under the age of 18 years.

Anthony will train the receptionist to do invoicing and record keeping and the apprentice to improve his spray painting skills while he has the time during the early stages of the business.

REQUIRED:
You will prepare a monthly labour budget for 7 months from 1/11/2015 to the end of the financial year, 30/6/2016.
(Payroll budgeting information will be available on Worksheet 1: Payroll Budget) Hint: Remember to observe changes in pay rates.

Revenue and Cost Budgets (Worksheet 2: Budgets)
REQUIRED:
For the period, 1st November 2015 to 30th June 2016, you are required to:- 1. Prepare a monthly & annual Budgeted Profit and Loss Statement.
Revenue will be calculated by determining a net profit equal to 7% of gross revenue (Revenue is Total Sales derived from services and product sales).
Calculate the minimum revenue to break even.
Prepare a monthly Cash Flow Budget for this same period. This will assist Anthony in keeping a record of the frequency of business cash payments.

(Budgeting Information will be available on Worksheet 2: Budgets)

Report explanation

REQUIRED:
You will meet with Anthony to discuss the budgets. To prepare for this meeting you will write a list of points to discuss under the following headings:-
Discuss & explain key performance indicators that can be obtained from the Profit & Loss budget.
Give reasons why the cash flow budget is an important tool for Anthony
Suggest a plan for Anthony that will permit him to obtain the optimum benefit of using budgets. For example, development and adjustment of a budget in a timely manner, the use of variances.

(Maximum 1 x A4 pages (one side)

SECTION THREE: FINANCIAL PREPARATION & ANALYSIS – FORECASTING (9 MARKS)
Assume that Paint Pleazer has been operating successfully for over 3 years.
It is now 1/7/2019.
REQUIRED: (Worksheet 3: Forecasting)
Prepare a forecast of the business’s revenue using the provided worksheet (Worksheet 3: Forecasting).
Estimate a forecast of revenue for the period from 1/7/2019 to 30/6/2020 using regression analysis techniques.
Discuss the reliability of forecasting using methods, such as regression analysis.
What other factors should be included in a forecast analysis? What specific factors would be relevant to Anthony’s business?

SECTION FOUR: FINANCIAL PREPARATION & ANALYSIS – FINANCE OPTIONS (9 MARKS)

Anthony has made an appointment to meet & discuss the expansion of his successful business.
He wishes to discuss:-
Renovating the existing property (estimated cost $80,000)
Acquiring new equipment ($12,000 one off payment)
Employing another part time spray painter additional (estimated $45,000 per annum)

These plans require funding.

REQUIRED:
Discuss the financial options available for Anthony in obtaining finance for each of the three costs. Note that each borrowing may be sourced differently due to the nature of their purpose.
(Maximum words 900)

SECTION FIVE: SUCCESSION PLANNING (5 MARKS)

Although Anthony has enjoyed operating his own business, he is now reconsidering his future.
REQUIRED:
Write a professional letter stating the options available for Anthony.