Case Study Details

Betty's Bookkeeping offers bookkeeping services to customers. This business is registered for GST and reports GST on the accruals basis to the ATO each quarter. Betty has been in operation for 3 years now and would like to see an increase in her profits from last year by at least 10%. The hourly rate charged to customers for bookkeeping services is $165 (including GST) and all customers are on account with 14-day terms.

Betty's Bookkeeping is busiest during the 4 months when it is tax time (July - October) and earns more than 50% of the annual income in this period. From July to October Betty employs staff members to help her handle the client demand and keep on top of her work. Based on last year's results and growing client numbers, Betty is expecting to charge the following hours for her clients in the first quarter of the year:

July - 150 hours

August - 200 hours

September - 180 hours

In the second quarter Betty expects October's hours to be the same as in August but then things start to quieten down in November and December. The hours will drop from November onwards and Betty expects November's hours to be 50% less than the hours in October and December's hours to be 50% less than the hours in November.

Betty takes 1 month off over December and January for Christmas and a holiday each year so usually the hours in January are the same as the hours in December. The hours each month from January onwards are very similar, except for the two months' when the BAS is due for her clients (February and June). Betty usually charges around 50 hours per month for the third and fourth quarter, with the hours in February and June being 100% more the other months.

Collection rates for accounts receivable are currently set as below:

50% in the current month charged

40% in the following month

10% in the second month following

The actual revenue for May was $7,700 (including GST)

The actual revenue for June was $11,000 (including GST)

As this work is quite seasonal and clients are on an account basis, cash flow could be an issue at times, Betty would like for the closing cash balance to not fall below $25,000 at any stage so she has sufficient business funds for if any unexpected expenses occur.

Appendix 1

Betty's Bookkeeping Organisational Policies and Procedures

Betty Bookkeeping wishes for the following organisational policies and procedures to be followed throughout the budget process:

• Budgets must be prepared using the excel budget template provided to ensure the business has sufficient cash flow and makes a profit
• Review invoices, quotes, bank statements and financial statements to help provide realistic budgeted amounts
• Assumed budgeted percentage increases/decreases amounts need to be reviewed each quarter and adjusted if needed
• Budgeted amounts must be reviewed against actual performance each quarter and changes/adjustments made if required using the excel variance analysis template provided
• Any variances between budgeted and actual result that are more or less than 5% must be investigated and reported to management
• Risk analysis should be conducted quarterly to identify any possible financial risks and strategies to reduce/control these risks need to be discussed and approved by management
• The Accounting Standards and Accounting Code of Practice must be followed when preparing reports/budgets
• The ethical and professional standards set out in Section 30-10 of the Tax Agent Services Act 2009 (TASA) - Code of Professional Conduct must be followed

Previous year financial reports Income Statement: Income Statement Budget for next year Revenue 5160,000 Less Operating Expenses Selling Expenses Advertising 510,500 510,500 Increase by 5% Administration Expenses Depreciation 514,000 15% diminishing value Insurance 55,800 Increase by 3% Utilities 53,800 Increase by 8% Rent 539,600 Increase by 2% Wages 518,000 Decrease by 5% Office expenses 515,261 596,461 3% of revenue Financial Expenses Bank fees 51,200 Decrease by 2% Interest on loan 526,400 527,600 No change Net Profit $25,439 Balance Sheet: Balance Sheet Current Assets Cash $22,619 Accounts Receivable $6,270 $28,889 Non-Current Assets Equipment $108,000 Accumulated Depreciation Equipment -$28,600 $79,400 Total Assets $108,289 Current Liabilities GST Payable $2,850 Non-Current Liabilities Loan $30,000 Total Liabilities $32,850 Net Assets $75,439 Capital Opening Capital $50,000 Net Profit $25,439 $75,439Revenue Budget Quarter Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Month Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Hours Price Revenue Quarter Total Accounts Receivable Collection Schedule Quarter Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Month Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Revenue GST Collections @ 50% Collections @ 40% Collections @ 10% Total cash collected Quarter Collections Operating Expenses Budget Quarter Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Month Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Selling Expenses Advertising Total Selling Admin Expenses Depreciation Insurance Utilities Rent Wages Office expenses Total Admin Financial Expenses Bank Fees Interest on loan Total Financial Total Quarter TotalCash Budget Quarter Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Month Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Cash Inflow Accounts Receivable Total Inflow Cash Outflow Advertising Insurance Utilities Rent Wages Office expenses Bank Fees Interest on loan GST payable Total Outflow Net Inflow/Outflow Quarter Inflow/Outflow Opening Cash Net Inflow/Outflow Closing Cash GST Budget Quarter Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Month Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun GST collected SO so so SO SO SO so SO so SO Less GST Paid on: Advertising Insurance Utilities Rent Office expenses Total GST paid Total GST Payable Quarter GST PaidIncome Statement Budget Quarter Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Month Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Revenue Less Operating Expenses Net Profit Quarter Net Profit Balance Sheet Budget Current Assets Cash Accounts Receivable Non-Current Assets Equipment Accumulated Deprn- Equip Total Assets Current Liabilities GST Payable Non-Current Liabilities Loan Net Assets Capital Opening Captial Net Profit