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Projections If the bakery stays open Katherine anticipates the current $200,000 in gross revenue per year will likely only increase by 2.5% per year for the foreseeable future. Cost of goods sold av- erage about 30% of sales for ingredients and supplies. Other than labour, her only other costs are rent and utilities which are currently $1,875 and $400 per month, respectively. If she closes the bakery Katherine would save on rent, utilities and wages. She also believes that making everything to order will cut down on waste so her cost of goods sold would go down to 25% of revenue. However, her catering clients would expect delivery so she would have to buy a van which she thinks she can purchase used for $10,000. In addition, she would need to repaint the van with her Windsor Cafe and Bakery Catering logo for an additional $800. The van would likely also cost $225 per month for gas and maintenance as well as another $150 per month for insurance. If she meets her upper limit of 120 events per year then gas and maintenance would likely increase by $100 per month. Other costs that Katherine anticipates for the catering business would include $2,000 for a lawyer to help set up the new busi- ness licence, $1,200 annually for advertising, $3,000 for a new refrigerator and other equipment for her home kitchen, and $50 per month for the added utilities at home. Katherine also realises she doesn't have the cash to pay for any of the start-up costs so she would need to borrow on her home line of credit at a rate of 5.5%. Conclusion Owning a caf and bakery in her home town had always been Katherine's dream. She has truly enjoyed the last ten years and the people she has worked with as well as all of the regular cus- tomers but she is wondering if it is time to change that dream into a home-based catering business instead. Katherine has come to you, her trusted friend and recent CPA graduate, for advice. As a first step, you've developed an outline of some of the things you need to think about before you provide the pro- fessional advice Katherine is looking for in a well structured re- port. Projections If the bakery stays open Katherine anticipates the current $200,000 in gross revenue per year will likely only increase by 2.5% per year for the foreseeable future. Cost of goods sold av- erage about 30% of sales for ingredients and supplies. Other than labour, her only other costs are rent and utilities which are currently $1,875 and $400 per month, respectively. If she closes the bakery Katherine would save on rent, utilities and wages. She also believes that making everything to order will cut down on waste so her cost of goods sold would go down to 25% of revenue. However, her catering clients would expect delivery so she would have to buy a van which she thinks she can purchase used for $10,000. In addition, she would need to repaint the van with her Windsor Cafe and Bakery Catering logo for an additional $800. The van would likely also cost $225 per month for gas and maintenance as well as another $150 per month for insurance. If she meets her upper limit of 120 events per year then gas and maintenance would likely increase by $100 per month. Other costs that Katherine anticipates for the catering business would include $2,000 for a lawyer to help set up the new busi- ness licence, $1,200 annually for advertising, $3,000 for a new refrigerator and other equipment for her home kitchen, and $50 per month for the added utilities at home. Katherine also realises she doesn't have the cash to pay for any of the start-up costs so she would need to borrow on her home line of credit at a rate of 5.5%. Conclusion Owning a caf and bakery in her home town had always been Katherine's dream. She has truly enjoyed the last ten years and the people she has worked with as well as all of the regular cus- tomers but she is wondering if it is time to change that dream into a home-based catering business instead. Katherine has come to you, her trusted friend and recent CPA graduate, for advice. As a first step, you've developed an outline of some of the things you need to think about before you provide the pro- fessional advice Katherine is looking for in a well structured re- port
