chandise her front window displays in January, March, May, September, and November. Each time it costs $200. Those same months, she prints brochures Lease and Location Expenses at a cost of $300 each time. In addition, she donates samples to the Chamber of Commerce and gift pack- In January 2016, Susie opened the new location ages to various charities to a total of $1800 per year. _ with a five-year lease. When she moved in, she She figures that occurs evenly throughout the year. made a deal with the landlord to make leasehold She has a static website basically showing her loca- improvements. Her share was $6000 in leasehold tion and product list. It was set up last year, and she improvements that she is depreciating over the enestimates she will spend $300 in April 2017 to update tire length of the lease. it slightly. In July 2017, she intends to get a vehicle Her rent is $30 per square foot for her 1200 wrap done. It will cost her $2000, and she will write square feet of retail space. In addition, she pays an this off as an advertising expense. additional $2 per square foot (on her 1200 ) for comThere is an advertising fund for St. Jacob stores mon area maintenance (CAM). CAM covers a comthat gives them additional mentions and ads in com- mon lunchroom, washrooms, two parking spots, munity advertising. She pays $4000 a year for her signage, and all interior and exterior maintenance. share. It is paid in March each year. Her only location costs are minor maintenance and cleaning costs of approximately $250 per month. Memberships Delivery Expenses Susie belongs to the local Chamber of Commerce Susie has decided to bring her van into the business and some of its subcommittees and spends $360 per year payable in July each year. Plus, she finds her as of January 2017. It is an older white cargo van $600 membership in the Boutique Retail Associa- valued at $13000. She estimates it will have a saltion of Canada, payable in September each year, vage value of $1000 in four years. There will be no well worth the cost. cash transaction. She is going to put all vehicle maintenance and operating costs in a delivery ac- Professional Fees count. She figures that will amount to $300 per Susie's total lawyer and accountant fees for the month plus an extra $250 in December as that is her year are about $3200. She pays this in equal payments in January, April, July, and October. busy month for deliveries to businesses. Salaries for Employees Other Monthly Expenses Susie works in the business during busy times but she is also the main sales and delivery person to the business accounts. She also does the purchasing, and the bookkeeping for the business. It is usually 60 -plus hours per week. She is single with no dependents. She withdraws $1250 per month and has set up no benefits for herself. Her long-time friend and one full-time employee earns $15 per hour and works 160 hours per month. Other monthly cash expenses for 2017 are estimated to be as follows: In addition, Susie has payroll expenses and some Susie has a good working relationship with her lobenefits she pays to her, adding up to an additional cal bank. She has a secured line of credit against 25 percent per month. her house with a $100000 limit on it. She pays 3.5 The Chocolate Shop (CS) is a specialty chocolate shop that retails delicious chocolate morsels. It is owned by Susie and has been in business for three years. At the beginning of January 2016, the shop moved its location to a small, quaint building in St. Jacobs that it shares with two other boutiques of complementary items. It does not produce any chocolate but instead buys from a local supplier. Sales Susie is projecting that 2017 retail sales will rise CS sells to retail customers; recently, the shop has by 2 percent as bus tours are expected to increase as the economy picks up. The B2B sales portion is to local businesses (B2B) for customer appreciation projected to rise 5 percent as she continues to exon pand her sales through networking. Giving out 2016 sales, and CS offers these clients net 30 dajs. Samples at the October Chamber After Five was a 30 days. great promotional tool for her this year. She beretail. Only 30 pers the seasonality breakdown for the two segpercent of retail pays cash and the ments will remain constant. other 70 percent pays by credit card, which costs In 2018, Susie is projecting the same increases CS 3 percent of these sales. This will continue in in the yearly sales again ( 2 percent for retail and 2017. Susie puts her credit card fees with other ex- 5 percent in B2B over 2017 sales). penses (miscellaneous) when comparing to the SME reports. In 2016, the shop's sales were projected to be Cost of Sales (Direct Costs) $425000 with the following seasonality patterns for the two segments of the business: Susie has developed a wonderful working relationship with her one supplier, Ascot Chocolates, which makes a full range of chocolate products. Turnaround is quick. She places orders, receives them, and pays COD one month in advance of the sales. She calculates that her cost of sales for her chocolate is 60 percent. She gets her packaging and wrapping material for 2 percent of her total revenue as she uses it (same month as sale). Again, she pays COD. That's all she considers to be direct expenses. percent interest on it anytime she uses it. For this - Accounts receivab e: $52222 (will collect all of forecasting, she assumes she pays the full month's it in January 2017) interest on the borrowed amount from the previous - Line of credit payable: $20922 interest and be conservative. ning. She is looking to you to create this financial However, her house is for sale, meaning she will model and also use them to make sound recommenlose her secured line of credit, probably sometime dations to improve her business. in the summer of 2017. She may have cash reserves, or it might be tied up in legalities. She isn't planning Discussion Questions to buy another house in the near future. For now, she is going to continue with her forecasting but 1. Prepare the following: this is troubling. a. Financial notes sheet(s) for all inputs and Her family has promised her a loan of $30000 on financial explanations used January 1, 2017, to help with inventory expenses for b. Monthly cash flow forecast for the year of Valentine's Day. They are charging her only 2.5 per2017. cent on any remaining principal. She has agreed to pay them $5000 principal and the yearly interest c. Pro forma income statement for the year of amount each December starting December 2017. 2017. It must compare the percentage of sales to the SME benchmarking for Depreciation (or Amortization) "confectionery and nut stores" for the industry of incorporated businesses in Susie uses straight line depreciation for all her longCanada in 2017. term assets. Anything associated with the building d. Pro forma balance sheet as at December 31 , will be depreciated over the term of the lease. 2017, compared to the December 31, 2016, Her store fixtures, cash register, etc. had an statement (on same sheet, side by side). original value of $24000 when she moved in January 2. Susie is concerned with her cash flow 2016 and were to be depreciated over six years; management. Examine her current practices for 2017 is their third year of usage. In addition, her collection of monies-what is it costing her and computer equipment that she bought in January what would be some alternatives to consider. 2016 is worth $2000, and it should be depreciated Then, in your recommendations, state what you over two years as she does like to keep up to date. think she should do and back it up with the She had no other depreciable items. potential savings/cash flow Susie could expect. Balance Sheet Details 3. Flowing from the analysis, prepare three justified recommendations for Susie to improve As of December 31, 2016, the shop's balance sheet her business in 2017. (Justified means you have included the following items: done the analysis and can now recommend - Cash on hand: $4000 (she likes to always keep figures.) a minimum monthly balance of $4000 ) This case was written by Barbara Rice, Professor at Conestoga - Inventory on hand: $15000 College. chandise her front window displays in January, March, May, September, and November. Each time it costs $200. Those same months, she prints brochures Lease and Location Expenses at a cost of $300 each time. In addition, she donates samples to the Chamber of Commerce and gift pack- In January 2016, Susie opened the new location ages to various charities to a total of $1800 per year. _ with a five-year lease. When she moved in, she She figures that occurs evenly throughout the year. made a deal with the landlord to make leasehold She has a static website basically showing her loca- improvements. Her share was $6000 in leasehold tion and product list. It was set up last year, and she improvements that she is depreciating over the enestimates she will spend $300 in April 2017 to update tire length of the lease. it slightly. In July 2017, she intends to get a vehicle Her rent is $30 per square foot for her 1200 wrap done. It will cost her $2000, and she will write square feet of retail space. In addition, she pays an this off as an advertising expense. additional $2 per square foot (on her 1200 ) for comThere is an advertising fund for St. Jacob stores mon area maintenance (CAM). CAM covers a comthat gives them additional mentions and ads in com- mon lunchroom, washrooms, two parking spots, munity advertising. She pays $4000 a year for her signage, and all interior and exterior maintenance. share. It is paid in March each year. Her only location costs are minor maintenance and cleaning costs of approximately $250 per month. Memberships Delivery Expenses Susie belongs to the local Chamber of Commerce Susie has decided to bring her van into the business and some of its subcommittees and spends $360 per year payable in July each year. Plus, she finds her as of January 2017. It is an older white cargo van $600 membership in the Boutique Retail Associa- valued at $13000. She estimates it will have a saltion of Canada, payable in September each year, vage value of $1000 in four years. There will be no well worth the cost. cash transaction. She is going to put all vehicle maintenance and operating costs in a delivery ac- Professional Fees count. She figures that will amount to $300 per Susie's total lawyer and accountant fees for the month plus an extra $250 in December as that is her year are about $3200. She pays this in equal payments in January, April, July, and October. busy month for deliveries to businesses. Salaries for Employees Other Monthly Expenses Susie works in the business during busy times but she is also the main sales and delivery person to the business accounts. She also does the purchasing, and the bookkeeping for the business. It is usually 60 -plus hours per week. She is single with no dependents. She withdraws $1250 per month and has set up no benefits for herself. Her long-time friend and one full-time employee earns $15 per hour and works 160 hours per month. Other monthly cash expenses for 2017 are estimated to be as follows: In addition, Susie has payroll expenses and some Susie has a good working relationship with her lobenefits she pays to her, adding up to an additional cal bank. She has a secured line of credit against 25 percent per month. her house with a $100000 limit on it. She pays 3.5 The Chocolate Shop (CS) is a specialty chocolate shop that retails delicious chocolate morsels. It is owned by Susie and has been in business for three years. At the beginning of January 2016, the shop moved its location to a small, quaint building in St. Jacobs that it shares with two other boutiques of complementary items. It does not produce any chocolate but instead buys from a local supplier. Sales Susie is projecting that 2017 retail sales will rise CS sells to retail customers; recently, the shop has by 2 percent as bus tours are expected to increase as the economy picks up. The B2B sales portion is to local businesses (B2B) for customer appreciation projected to rise 5 percent as she continues to exon pand her sales through networking. Giving out 2016 sales, and CS offers these clients net 30 dajs. Samples at the October Chamber After Five was a 30 days. great promotional tool for her this year. She beretail. Only 30 pers the seasonality breakdown for the two segpercent of retail pays cash and the ments will remain constant. other 70 percent pays by credit card, which costs In 2018, Susie is projecting the same increases CS 3 percent of these sales. This will continue in in the yearly sales again ( 2 percent for retail and 2017. Susie puts her credit card fees with other ex- 5 percent in B2B over 2017 sales). penses (miscellaneous) when comparing to the SME reports. In 2016, the shop's sales were projected to be Cost of Sales (Direct Costs) $425000 with the following seasonality patterns for the two segments of the business: Susie has developed a wonderful working relationship with her one supplier, Ascot Chocolates, which makes a full range of chocolate products. Turnaround is quick. She places orders, receives them, and pays COD one month in advance of the sales. She calculates that her cost of sales for her chocolate is 60 percent. She gets her packaging and wrapping material for 2 percent of her total revenue as she uses it (same month as sale). Again, she pays COD. That's all she considers to be direct expenses. percent interest on it anytime she uses it. For this - Accounts receivab e: $52222 (will collect all of forecasting, she assumes she pays the full month's it in January 2017) interest on the borrowed amount from the previous - Line of credit payable: $20922 interest and be conservative. ning. She is looking to you to create this financial However, her house is for sale, meaning she will model and also use them to make sound recommenlose her secured line of credit, probably sometime dations to improve her business. in the summer of 2017. She may have cash reserves, or it might be tied up in legalities. She isn't planning Discussion Questions to buy another house in the near future. For now, she is going to continue with her forecasting but 1. Prepare the following: this is troubling. a. Financial notes sheet(s) for all inputs and Her family has promised her a loan of $30000 on financial explanations used January 1, 2017, to help with inventory expenses for b. Monthly cash flow forecast for the year of Valentine's Day. They are charging her only 2.5 per2017. cent on any remaining principal. She has agreed to pay them $5000 principal and the yearly interest c. Pro forma income statement for the year of amount each December starting December 2017. 2017. It must compare the percentage of sales to the SME benchmarking for Depreciation (or Amortization) "confectionery and nut stores" for the industry of incorporated businesses in Susie uses straight line depreciation for all her longCanada in 2017. term assets. Anything associated with the building d. Pro forma balance sheet as at December 31 , will be depreciated over the term of the lease. 2017, compared to the December 31, 2016, Her store fixtures, cash register, etc. had an statement (on same sheet, side by side). original value of $24000 when she moved in January 2. Susie is concerned with her cash flow 2016 and were to be depreciated over six years; management. Examine her current practices for 2017 is their third year of usage. In addition, her collection of monies-what is it costing her and computer equipment that she bought in January what would be some alternatives to consider. 2016 is worth $2000, and it should be depreciated Then, in your recommendations, state what you over two years as she does like to keep up to date. think she should do and back it up with the She had no other depreciable items. potential savings/cash flow Susie could expect. Balance Sheet Details 3. Flowing from the analysis, prepare three justified recommendations for Susie to improve As of December 31, 2016, the shop's balance sheet her business in 2017. (Justified means you have included the following items: done the analysis and can now recommend - Cash on hand: $4000 (she likes to always keep figures.) a minimum monthly balance of $4000 ) This case was written by Barbara Rice, Professor at Conestoga - Inventory on hand: $15000 College