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Writing down the business model

Before starting a business as a sole trader, David Green needs to understand the main characteristics of the sole proprietorship form of business. In this type of business, the owner of the business is expected to contribute the total capital and assumes all the risks associated with the business. There are series of steps that should be followed before starting a sole trader business as decorator. The steps that should be followed for starting a business is explained in detail below:

The first and the foremost step in setting up a business model is to nail down the business model, whether a contract shop or retail business. Both the type of business model operates differently. Before deciding the business model, it is advisable to conduct research by knowing the perspectives on pros and cons of models. The owner could obtain relevant information from industry mentors or business coach.

The next step is to create a business plan for the business. Most of the small business does not create the business plan due to the fact that it requires planning and forethought. The business plan should contain information about the products or services offered, target customer, competitor’s information, marketing strategy, operational plan, sources of finance and financial viability of the business.

In this step, the sole trader should focus on listing the equipment needs for providing decorating services. In order to have greater insights, the owner should attend an industry trade shows. While asking the vendor questions, the owner should inquire about the ongoing support, training requirement and financing options available. Do not forget that the business will require laptops and computers for loading graphics artwork software and growth plan.  

Reach out to the recommended suppliers and request for price sheets, catalogues and samples. Open account with the supplier whose product matches with the preference of target audience. During the initial days, the business should focus on regional suppliers.

Decorating is a form of business that requires branding. Therefore, the owner must develop a logo on its own or hire a logo designer (Adams and Burd 2019). In addition, business cards, stationery, brochures, invoices must be ordered ensuring that they contains the company’s logo. Printing logo on hats, jackets and hoodies would help in creating image of the brand in the minds of the customers.

Nowadays, most of the people spent their leisure time on social media platforms such as Facebook, Instagram, YouTube and Twitter. The use of these social media platforms would help in increasing the visibility of the business. The business can create a separate page on Facebook and Instagram, which can be used to post pictures, videos and resolve the queries of customers.

An official website of the business will be required even if the business does not offer e-commerce business. Here, the owner’s could present why it is the best shop in the location and show examples of decorated items on the website.

This can be done by sponsoring any sports event or charity run so that the people will come to know about the business. In addition, the sole trader should not be shy in asking other businesses for referrals.

Creating a Business Plan

2) Accounting is the process of recording financial transactions of the business. The accounting statements provide vital information to the stakeholders, which help them in making various financial decision. To understand this, let us consider Tesco Plc listed on London Stock Exchange. The decision makers through the information provided by the accounting statements include management, investors, employees and suppliers. The management utilizes information about the profitability of the business and operational efficiency for making important decision about the business. The investors view the statement of profit and loss for profit and the dividend information about the company. It helps the investors of Tesco Plc for making investment decisions. The information provided on the consolidated balance sheet and income statement is used by the suppliers to calculate various ratio such as accounts payable days to understand the time taken by the company to pay to the suppliers. These informations is used by the suppliers to make decision regarding credit terms and other related matters.

1)

Journal Entries

Date

Particulars

Debit

Credit

Sep. 2021

1

Bad debt expense A/c

105

     Debtors - P Mullen

105

(To record debt written off as bad debt

5

Creditors - Syme Ltd

150

      Office fixtures

150

(To record office fixtures returned to suppliers)

10

Bad debt expense A/c

131

Cash A/c

180

      Debtors - M Abel

311

(To record amount received from M Abel as full settlement)

18

Machinery A/c

1800

       Cash A/c

100

       Bank A/c

500

        Creditors - Brown Ltd

1200

(To record purchase of Machinery)

26

Creditors - Brown Ltd

600

        Bank A/c

600

(To record payment for machinery)

28

Owner's capital

70

 Insurance expense

60

        Bank A/c

130

(To record payment of interest expenses of business and owner's private house)

 2)

T- Accounts

Bank Account

Debit

2021

Credit

2021

12400

02-Aug

2800

03-Aug

430

25-Aug

6200

04-Aug

1000

05-Aug

8700

19-Aug

750

28-Aug

12830

Total Debit

19450

Total Credit

6620

Closing balance

Loan Account - Santander Bank

Debit

2021

Credit

2021

12400

02-Aug

0

Total Debit

12400

Total Credit

12400

Closing balance

Cash Account

Debit

2021

Credit

2021

2800

03-Aug

110

15-Aug

430

25-Aug

2800

Total Debit

540

Total Credit

2260

Closing balance

Van Account

Debit

2021

Credit

2021

6200

04-Aug

8700

08-Aug

14900

Total Debit

0

Total Credit

14900

Closing balance

Office Fixtures

Debit

2021

Credit

2021

3400

05-Aug

110

15-Aug

750

28-Aug

4260

Total Debit

0

Total Credit

4260

Closing balance

Creditors

Debit

2021

Credit

2021

8700

19-Aug

2400

05-Aug

8700

08-Aug

8700

Total Debit

11100

Total Credit

2400

Closing balance

Trial Balance

as at 31 August 2021

Particulars

Debit

Credit

£

£

Bank Account

             6,620

Loan Account - Santander Bank

          12,400

Cash Account

           2,260

Van Account

         14,900

Office Fixtures

           4,260

Creditors

             2,400

Total

         21,420

          21,420

In the books of B Moore

Income Statement

for the year ending 30 Sep 2021

Particulars

Amount

Amount

Sales Revenue

           95,000

Less: Sales Return

            (3,500)

Net Sales Revenue

           91,500

Cost of Goods Sold:

Opening Inventory

           18,000

carriage inwards

                 890

Purchase

         110,000

Less: Purchase return

               (720)

Less: Closing Stock

          (13,000)

Total Cost of Goods Sold

         115,170

Gross Loss

           (23,670)

Expenses

Motor Expenses

             1,400

Rent

             7,000

Telephone charges

                 830

Wages and salaries

           14,000

insurance

             1,030

Office Expenses

                 800

Sundry expenses

                 800

Carriage outwards

                 250

Total Expenses

           26,110

Net Loss for the year

         (49,780)

2) The past performance of the company indicates that the profitability of the company was increasing at an average of 13.30% prior to the covid-19. The business profitability has been largely impacted due to the coronavirus pandemic all over the world as the company has suffered a loss of $65,400 during the year 2020, after 15.64% increase in profit during 2019. With the reduction in the covid-19 restrictions and the company’s past performance, it is expected that the company profitability will improve by 40% in the year 2022. However, the company would suffer a loss of $29,868 during 2022. Overall, the company has a very good past performance, which is considered in forecasting the performance in 2022.   

Date

October, 2021

Accounts & Explanation

Debit

Credit

1

Bank

10,000

Cash

4,800

Flat

45,000

Vehicle  

12,000

 Capital A/c  (Anne York)

71,800

2

Furniture

5,400

 Accounts Payable (Home Ltd.)

5,400

4

Equipment (Printer)

200

  Bank

1,000

5

Bank

2,800

    Sales

2,800

12

Repairing expenses

110

   Cash

110

18

Accounts Payable (Home Ltd.)

250

   Furniture  

250

21

Bank

800

   Other income (Rent income)

800

23

Cash

1,800

Accounts Receivable (Rayan)

300

    Sales

2,100

23

Cash

700

    Sales

700

24

Equipment (Laptop)

1,700

     Bank

1,700

26

Wages & Salaries

820

   Bank

820

30

Rent Expenses

850

   Bank

850

31

Drawings

1,200

   Bank

1,200

31

Cash

150

  Accounts Receivable – (Rayan)

150

Bank

Debit

Credit

10,000                                           01 October

2,800                                             05 October

800                                             21 October

13 600                                            Total Debit

8 030                                   Closing Balance

1,000                                                 04 October

1,700                                                 24 October

 820                                                   26 October

850                                                    30 October

1,200                                                 31 October

5 570                                                  Total Credit

Debit

Credit

4,800                                                 01 October

1,800                                                23 October

   700                                                 23 October

150                                                 31 October

7,450                                             Total Debit

7,340                                         Closing Balance

 110                                                          12 October

110                                                        Total Credit

Debit

Credit

45,000                                             01 October

 45,000                                 Closing Balance

Debit

Credit

12,000                                             01 October

12,000 Closing Balance

Debit

Credit

71,800                                                   01 October

71,800 Closing Balance

Debit

Credit

5,400                                                 02 October

5,150                                     Closing Balance

  250                                                    18 October

Debit

Credit

250                                                  18 October

5,400                                                        02 October

5,150                                             Closing Balance

Debit

Credit

1000                                                 04 October

1700                                                   24 October

 2700                                        Closing Balance

Debit

Credit

2,800                                                     

05 October

2,100                                                      

 23 October

700  

23 October

5,600                                              

Closing Balance 

Debit

Credit

110                                                    

12 October

850                                                     

30 October

960                                           

Closing Balance

Debit

Credit

800                                                          

21 October

 800                                                 

Closing Balance

Debit

Credit

300                                               23 October

150                                            Closing Balance

150                                                          31 October  

Debit

Credit

820                                                  

26 October

820

Closing Balance

Debit

Credit

1200 31 October

1200                                         Closing Balance 

Particulars

Debit Balance

Credit Balance

Bank

£8030

Cash

£7340

Flat

£45000

Vehicle

£12000

Capital

£71800

Furniture

£5150

Accounts Payable

£5150

Equipment

£2700

Sales

£5600

Expenses

£960

Other Income

£800

Accounts Receivables

£150

Wages & Salaries

£820

Drawings

£1200

Total

£83 350

£83 350

1. Income Statement for period ended 31 October 2021

Particulars

Amount

Sales

5600

Cost of sales

- Opening inventory  £0

- Purchases £0

- Closing inventory £320

320

Gross Profit

5920

Less:

Expenses

Wages and Salaries

960

820

Add:

Other income

800

Net profit

£4940

1. Statement of Financial Position as of 31 October 2021

Capital and Liabilities

Amount

Capital

Accounts Payable

75540

5150

Total Liabilities

80 690

Assets

Non-current assets:

Flat

Vehicle

Furniture

Equipment

45 000

12 000

 5 150

 2 700

Current Assets:

Cash

Bank

Account Receivables

Closing inventory

7 340

8 030

    150

    320

Total assets

80 690

  1. Net profit Margin = net profit/sales = (210)/5600 = - 3.75%
  2. Gross profit margin = gross profit/sales = 770/5600 = 13.75%
  3. Current ratio= current assets/current liability= 15,840/5,150= 3.08
  4. Acid test ratio = (cash+ accounts receivable) / current liability = (7,340+8030+150)/5,150 = 3.02
  5. Accounts receivable collection period = Receivables / Average daily credit sales = 150/ (5600/360 days) = 9.64 days or 10 days
  6. Accounts payable payment period = Accounts Payable / Average daily purchases = (5,150/ (5,150/360 days) = 360 days

In order to compare two businesses or two phase of the same firm on a variety of fronts, ratio analysis is an effective strategy/study. This comprises factors like as profitability, liquidity, and so on. As we all know, COVID-19 has had a negative impact on the performance of every organisation. When comparing the net profit margins of competitors in 2019, 2020, the net profit margins of competitors in 2021 were greater. It follows that Covid-19 has had a negative impact on the performance of every company. Because of increased restrictions and lockdown in trade as a result of Covid-19, the majority of businesses have seen a decline in sales. However, when we looked at Anna's business for the month of October 2021, we found that the Profit Margin was lower than the competitors' margin, indicating that Anne's performance has not been on pace with the industry or with her competitors. The current ratio of Anne's company outperforms that of her competitors, according to her. It signifies that Anne's company has better liquidity than the competition. When comparing Covid -19 to previous years, liquid ratios have not been reached. Inventory may be accumulating in warehouses since most businesses are not moving inventory owing to lower sales as a result of the Covid-19 epidemic. The accounts receivable will be high since the majority of the business has not paid on time, while the liquidation ratio will be high because the majority of the business has not paid on time. The Anna’s business was excellent at controlling liquidity of the company by looking at ratios, even when the company's profitability was weak. Anna was able to recover cash from customers fast, even when the company's profitability was poor. So Anna's accounts receivable days are 10 days, when the industry average is 26 days. As a result, she is paying suppliers far later than the industry standard. It will take 360 days to pay off its debts to creditors. It's possible that this is due to Anna's upcoming special negotiations with suppliers to obtain greater flexibility in terms of credit period. The higher it is, the better it is for the corporation because it gives it more time to locate resources to meet its financial responsibilities (Ratio Analysis, 2020).

Despite the fact that the Covid-19 pandemic had a negative impact on the majority of businesses, particularly Anna's business, there was a good outcome in terms of liquidity for Anna's business.

References

Adams, P. and Burd, P., 2019. Classic soccer shoes: From an informal to a formal business start-up. The International Journal of Entrepreneurship and Innovation, 20(3), pp.220-226.

Financial Statement Analysis, 2020. Ratio Analysis.

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My Assignment Help (2022) Steps To Start A Sole Trader Decorating Business And Importance Of Accounting In Business Essay. [Online]. Available from: https://myassignmenthelp.com/free-samples/fblu028-accounting-and-finance/sole-proprietorship-form-of-business-file-A1E6D06.html
[Accessed 15 July 2024].

My Assignment Help. 'Steps To Start A Sole Trader Decorating Business And Importance Of Accounting In Business Essay.' (My Assignment Help, 2022) <https://myassignmenthelp.com/free-samples/fblu028-accounting-and-finance/sole-proprietorship-form-of-business-file-A1E6D06.html> accessed 15 July 2024.

My Assignment Help. Steps To Start A Sole Trader Decorating Business And Importance Of Accounting In Business Essay. [Internet]. My Assignment Help. 2022 [cited 15 July 2024]. Available from: https://myassignmenthelp.com/free-samples/fblu028-accounting-and-finance/sole-proprietorship-form-of-business-file-A1E6D06.html.

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