The case of Magical Healthy Goodies deals with the behavior of the business owner in ordinary business life. It also addresses the importance of accounting and finance, especially about business decision-making. The firm was about to commence operations in December 2010, and before that, the accounts and finance side of the enterprise should be assessed.
Description of Business
Objective: Ms. Fatmah Hemdan has chosen Facebook as the medium to reach her potential customers, obtain orders from them, and know about their preferences. Facebook is a global social networking website. This means Magical Healthy Goodies wants to have a global outreach. The business of low-calorie intake baked cookies, cakes, and pastries should attain international standards.
Employees hired: Ms Alyaa Mohamed has been appointed as a personal assistant. Further, three chefs and three delivery boys are to be utilized. The delivery boys would handle the local orders. A manager is to be hired to arrange for international delivery and shipping. An accountant is also to be hired. Ms. Fatmah appoints herself as the CEO of the company.
Business activities and products offered: Business activities include manufacture, customization, delivery, and shipping of the products. Products include low-calorie intake baked cookies, cakes, and pastries.
Marketing technique: Ms. Alyaa can take responsibility for online advertisements and newspaper promotions. Propagation of the business would take place through Facebook also.
Identification of Financial Stakeholders and Required Financial Information
- The owner: “Good managers make not a lot of decisions. They focus on what counts. They are seeking to make the few big decisions on the highest level of intellectual comprehension “(Drucker et al., 2001). Ms. Fatmah has to work at the level of accountancy management. She has to see the entries in the log, ledger, and court balance. Since this is the age of globalization, and the organization will strive over time to establish international outreach, all financial records in terms of US dollars should be maintained.
- The lender: A bank that has international operations will borrow money. The owner will review the bank’s preceding annual reports. The bank’s stock valuation is also a significant concern. The lender, i.e., the bank, is required to test the capacity of Ms. Fatmah to provide collateral protection. There should be one credible guarantor. The new company’s capital assets and the volume of cash in hand are significant Bank factors.
- Competitors: Advertising financial statements is usually avoidable in a competitive market. Ms. Fatmah needs to keep an eye on her competitors, especially those who launched a public problem. Their stock prices and annual reports are crucial. Moreover, Ms. Fatmah must gather information about the pricing of the food products and spending on the services offered by the competitors. The competitors, too, would seek to find out pricing schemes, spending on the services provided, etc. with regards to Magical Healthy Goodies.
- Customers: Ms. Fatmah must either conduct market surveys with the help of a consultancy company or research through the existing survey reports in the business world. The preferred price range of the customers must be found out. The per capita incomes of the locality and the target countries are essential. The expenditure pattern of potential customers should be studied. The customers, on the other hand, must enquire about the financial status of the company and its capital reserves. Retailers may contact Ms. Fatmah and ask for the regular supply of food products. They may like to look at the trial balance of the company to examine its fiscal reliability.
- Suppliers: Suppliers are the creditors to the business, so they must be selected carefully. Ms. Fatmah must consider the price rates of the raw materials offered by the suppliers. The financial reputation of the suppliers must also be checked. The owner should enquire in the market about the economic behavior of the suppliers. Also, the suppliers would like to know about the capital reserves and cash in hand of the new company to assess its reliability.
Market surveys, verbal inquiry, researching through existing business reports, etc. are reliable ways of obtaining the right financial information. Consultancy firms in this field can also help. Annual reports, balance sheets, profit and loss statements, etc. are good sources of financial information.
Identification of Business Assets and Liabilities
- Long term liabilities are liabilities with benefits for over one year (Weygandt et al., 2010). In this case, the loan secured from a bank is a long term liability. Moreover, if debentures and mortgage loans are also obtained, they will be long term liabilities.
- Short term liabilities are liabilities with the benefits and obligations of less than one year (Weygandt et al., 2010). Bills that will be due to the suppliers and creditors will come under this category. Short term duties and taxes for the company are also short term liabilities.
- Long term assets generate revenues for longer than one year (Needles et al., 2007). The business is home-based, so the property and fittings will be long term assets. Moreover, equipment, utensils, furniture, etc. will be long term assets of the company.
- Short term assets are used to fund daily operations, and these can be readily cashed (Ross et al., 2008). In this case, for example, edible oil, flour, and other raw materials will be short term assets. Stock in hand, cash in hand, sundry debtors, etc. come under this category.
Assets cannot be greater than liabilities at any point in the business operations. The value of the interest of the ownership, i.e., the equity will always remain balanced. Moreover, 100% equity of the company will be under Ms. Fatmah since she has the entire proprietorship of the company. She will have all the responsibilities and full power with regards to the company.
Identification of Business Budget
- During the beginning, Ms. Fatmah will have to bear the expenses of the business for quite some time. The budget can roughly be like the following:
Equipment, raw materials – $ 20000
Salaries, taxes, and dues – $ 20000
Cash and reserves – $ 30000
Advertisement and marketing – $ 10000
Other expenses – $ 20000
Total – $100000
This money can be obtained using securing bank loans and investing from the personal savings of Ms. Fatmah.
- A fixed budget is the type of budget based on specific criteria. The net amount will neither increase nor decrease in due course of the operation. Ms. Fatmah’s business is relatively new; a fixed budget is a better option. During the operational year, the company may face a price hike, depreciation of assets, etc. But the categorization of funds and allocation of resources according to the budget designed will help the business in the long run.
Business decision making is analyzed about a firm’s deployment of its existing resources and its selection of new investments (Baker, 1981). Ms. Fatmah has chosen international social networking, and if she is severe, then she must keep in mind the issue of globalization. The business must be developed to address the global challenges and embark on international operations instead of the beginning.
- Baker, A. J. 1981. Business Decision Making. London: Croom Helm Ltd.
- Drucker, P.F., Hammond, J., & Keeney, R. 2001. Harvard Business Review in Decision Making. Cambridge, MA: Harvard Business School Publishing Corporation
- Needles, B.E., Powers M., & Crossen, S.V. 2007. Principles of Accounting. Mason, OH: Cengage Learning
- Ross S.A., Westerfield, R., & Jordon, B.D. 2008. Fundamentals of Corporate Finance. Noida: Tata McGraw-Hill
- Weygandt, J.J., Kimmel, & P.D., Kieso, D.E. 2010. Accounting Principles. Hobokon, NJ: John Wiley and Sons