Legal Form of Ownership
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1.In today’s scenario it is observed that the demand for coffee has seen a tremendous increase. The number of coffee lovers have increase to great extend which attached to open a coffee house with the name “The Caffeine Café”. The aim behind this business plan is to serve best quality product and services to local level customers by providing them a warm and friendly atmosphere. The philosophy behind this business plan is product, service and atmosphere (Kadan, 2012).
The legal form of ownership is going to be a partnership so that the investment amount is a combination of capital invested by each. The combined capital will give us an advantage of opening a moderate sizes shop. The raw material required for the serving the coffee is purchased from a manufacturer so that it is made available at a low price. This industry is on the verge of growth. The future of the industry is alive till the time there is demand and supply of coffee (Crague, 2012). The major issue that could be faced with this industry is lack of supply, price rise and any natural calamity. As we are aware of these problems, advance provisions to face the same will be made.
2. As discussed earlier that the legal form of ownership of The Caffeine Café is partnership. The reason behind considering this legal form is sharing of risk and profits. The cost associated with the initial investment for opening a coffee shop was distributed between the partners and non-got burdened with the same. It could be said that in taking any decision, two minds working is always better than one. One of the major benefit of working in partnership is that there are limited external regulations. The main regulatory document is the partnership deed that is made by the partners (Morris, Webb & Franklin, 2011). In case there will be need of funds, money lending would be always prioritised to partnership rather than sole working. There is an opportunity of saving tax individually by splitting the income into the ratio as decided at the time of preparing the partnership deed. Also the major reason for choosing the option of partnership was sharing of loss (Sedov, 2017). In case the business plan does not work out to be the as expected, and there are losses incurred, then such losses could be distributed among the partners. The working related to the management of internal and external affairs could be easily distributed in accordance to the interest of the partners. This will help in get the work done on time and will finally result in building trust among the customers (Peng, 2011).
Financing Options
3. According to a research it was found that 94% of start-up businesses fail during the initial stage of the year. The cause of such failure is lack of funds. If there is not set source from where the funds could be raised at the initial stage, it becomes difficult for the business pan to stay stable. The funds made available are considered as fuel for the working of the business. At the time of setting the coffee house, The Caffeine Café the following sources of funds where available where:
Crowd Funding: Crowd funding was one of the source through which we came across for the first time. In crowd funding the entrepreneur will introduce the business plan on the crown funding platform and will provide information such as the objective, legal form and an estimate of the funds that are required (Anon, 2016.). Through crowd funding more than one person could lend money. This source was eliminated as the main criteria for raising funds from multiple person was the popularity of the business model.
Angel Investment: Such investors are individuals who have surplus money with them and are looking for the best business proposal to invest. In exchange to the money invested by them they have right to inspect the management of the business and give suggestions and recommendations (Minich-Pourshadi, 2010).
Loan from micro finance companies and NBFCs: The financial companies which are ready to provide loan at simple and low interest rates is one the best option available to raise funds. Such companies do not have stringent policies and are flexible in their working styles. This was one of the option that was opted to raise funds for The Caffeine Café.
Personal Investment: Investment made from owns pocket is the best way to find cash. When the money involved in the business is from the own pockets the seriousness to grow the money is double the rate. There is no issues such as refund of the money, interest rate and o documentation. This was another option undertook to start The Caffeine Café.
4. Accounting plays a very important role in any business irrespective of the size and industry the business is associated to. Cash flows, income and expenditure accounts are required for the business to keep a control on the working. Track on the flow of the cash is important to be kept as a minimal level of cash is required to be maintained at the business. The accounting information that will be recorded in the books of accounts of The Caffeine Café would be related to the financials.
Role of Accounting in the Business
The accounting information will be used by the partners of the café and as the funds raised are through financial institution, hence, they shall demand a copy of the accounting information for their records.
The accounting process that will be followed by the partners will be- Setting up of simple accounting system, preparing chart of accounts, opening a bank account, separating personal and business expenses, record keeping of receipts and invoices, creation of payment and receipt of payment system, record the entries related ad develop a forecast (Doinea, 2011).
The financial accounting maintained by the partners will be inform of preparation of financial statements. Entries made in the financial statement will be trough the data collected from the transaction made.
The management accounting process will keep a record of the cost that is incurred in the set of the business. Such cost incurred will be available for comparison with the revenues earned by the way of management accounting. The estimated profits could be found through this.
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6. It is observed that the posting of the journal entries in the respective ledger accounts is a time consuming process. There are times when the entries of similar entries are to be made. Repetitive entry of similar entries in a waste of time. In order to speed-up such process, special entries are used to record the repetitive entries having the effect on the same set of accounts (Ramagopal, 2009).
Considering the business of The Caffeine Café where majority of the transitions are cash receipt and cash disbursement based, there will be a need of using special entries for saving time. It is obvious that the business will have similar nature of transactions, hence use of special entries would be a benefit for the accounting procedure. With the use of special entries, the transactions would be documented in one line of the ledger (Skærbæk & Tryggestad, 2010). After that there will be no requirement of posting individual entries separately, the total of each column will be posted at the end.
7. Adjustment Entries are mostly done at the end of the year for any business. Such entries are done to record any unrecognised or un-entered income or expense. Whenever there is a transaction starting in one period and ending in the other period, there is a need to make an entry in the books of accounts. In case such entry is omitted, the same needs to be adjusted in the current period.
In the case of The Caffeine Café the adjustment entries are not applicable as it will be the first year for the business to make any transitions. Hence, there will be no transition that would have been started in the previous year and ended in the current year. Therefore there is no need to make adjustment entries (De Franco, Wong, & Zhou, 2011).
Closing Entries is also done at the end of the year. The journal entries made in the books of accounts are closed at the end. The process of moving the data from the temporary account to the permanent account is closing of journal entries. The temporary account in such case is the income statement and the permanent account is the balanced sheet (Imam & Kouwenaar, 2008).
In case of The Caffeine Café, the closing of the entries will be done at the end of the accounting period. This would be done to bring the balance of the temporary accounts to zero which includes the revenue and expenses account.
8.In order to understand the progressive earnings of any business, the analysis of profits would be appropriate. The earning done by any business after making the relevant deductions is the profit earned by it. The earning of profits depends on the form of business. One the profits are earned, there are two options before the partners. The profits could either be distributed among the partners or retained in the development of the business. Such retention of profits are done to maintain the cash flow in the business for the next year or could be used as capital investment (McKelvie & Wiklund, 2010).
In case of The Caffeine Café, it will be suitable for the partners to keep the profits in the business. As the business have undergone only one year, the amount of profit earned are also eligible. Distribution of the same would not solve the personal purposes of the partners, rather the retention will help them in the development of the business or repayment of the loan took (Whitfield & Duffy, 2013). Even if the profits are distributed, there will be no difference in the taxation of the amount. Hence it is suggested to the partners to retain the profits in the business.
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