Janny has been working as an Administrative Assistant for the past four years. As a mother of an energetic five-year-old, the part-time job has worked well for her. With Mick, her son, heading off to school next month (September 2022), Janny is considering new career options, perhaps starting in January. Her employer has been getting busier and has offered Janny full-time employment if she ever desires it. The full-time offer would transition Janny from an hourly rate of $21 per hour (she typically works 20 hours a week) to a salary of $45,000 per year (she is expected to work 40 hours a week). As Mick has grown up recently, Janny and her husband, Heath, have earned just enough to make ends meet. However, they are now looking to grow their savings while continuing to pay off their three-bedroom townhouse. As Heath’s income is expected to remain roughly constant over the near term, Janny is pondering how she can boost her earnings. It’s not critical to amass more cash immediately as the couple has secured a $20,000 line of credit at 4.20% (there is no current balance, and the rate is expected to increase to 6% for the next year). Janny has a natural talent for baking. Adults and children have complimented her cupcakes, cookies, muffins, etc. 

A fair number of them have told her that she could succeed if she were to start her own business. With some early planning/research, Janny has determined that the following sales numbers are reasonable for her first month of business, possibly January 2023: Item Sales volume Sale price Cookies- batch of 12 100 $7 Cupcakes- batch of 6 100 $6 Muffins- batch of 4 80 $8 Other N/A $600 (monthly total) Janny has projected monthly fixed costs of $600 when she starts her business (these are currently incurred as living expenses, though at lower rates such as the depreciation of the baking oven). There will also be approximate variable expenses equal 40% of the sale price for each baked good (including others). Janny has unused (and unfinished) space in her basement, which can be used to build a more oversized kitchen with storage. It would cost an estimated $16,000 to finish the basement and an additional $5,000 for industrial-grade baking appliances (which can only be installed in the basement due to input constraints). In theory, once finished, the basement can be rented out at a rate of $900 per month, but since purchasing the house seven years ago, Janny and Heath have opted not to finish the space for rental purposes. With industrial appliances, Janny can bake, in addition to $600 worth of “other” goods, 500 items in a total of cookies, cupcakes, and muffins (e.g., 200 dozen of cookies, 150 half-dozens of cupcakes, and 150 quartets of muffins) while working on a part-time work basis. Without industrial appliances, this volume could only be managed full-time. Janny is wondering if the basement investment is worthwhile now or in the future. 

She wants a detailed analysis with all possible elements taken into consideration. Janny is wondering how she may depreciate appliances. As her business is expected to grow, so will the use of devices. Janny wonders how depreciation works, the most appropriate depreciation method for her needs, and what a sample monthly journal entry may look like. Currently, Janny is projecting a growth rate of 4% per month, compounding monthly for the first 24 months. This will be followed by annual growth of 7% per year for the next three years (the business will be considered mature with no further development). Janny is wondering if it is worthwhile to put some effort into marketing. By spending $200 a month on flyers, she believes the initial two-year monthly growth rate can be boosted to 4.25% (the growth rates after two years would remain unchanged). By spending an extra $600 monthly on social media advertising, Janny can add 0.25% to the two-year growth rate and the three years after. However, she is reluctant to use social media as she feels some ethical issues may exist. Janny is looking for advice on running an honest business and wants a recommendation on the best marketing strategy for her. Due to her administrative assistant experience, Janny is semi-aware of the importance of keeping accurate records and having a reliable accounting system. 

She wants you to give her some more advice on best accounting practices. Due to her busy schedule and slight disdain for numbers, Janny strongly considers asking her friend Ryan to be a business partner with her. She is thinking of asking him to pay her $10,000 for a 30% share of the business. Additionally, he would be responsible for completing the bookkeeping and buying baking ingredients every week. Without Ryan, these tasks would take 20% of Janny’s entrepreneurial work time. Janny wants a pros and cons analysis and a recommendation for taking on Ryan as a business partner (either now or in the future). Janny wants a detailed analysis of her business plan. She wants advice on ethics, business strategies, and other relevant matters. Janny welcomes any recommendations, as well as any questions that will help you better analyze her options.

Please prepare a business memo to Janny addressing all issues raised in this case.

Answer rating: 100% (QA)

To J anny From Joe Smith Date 29 July 2022 Re Business Plan Dear J anny Thank you for coming to me w... View the full answer