PR2 - Task 2 Prepare and Provide Financial Advice to Client

Scenario

Planning for the new business venture

Kelly has called you again, after you met with her and provided an analysis of her home-based business and tells you that she would like to go ahead and start planning to open the shop in Berwick. She has decided that she needs to take on a partner to help with the running of the business and also provide an injection of capital. She has asked her friend Katie to go into partnership with her and Katie has agreed to this. Katie is to be a silent partner and I happy to leaving the running of the business to Kelly. They would like to call their new business K and K Cakes.

Kelly has found an available shop in the perfect location, in a busy shopping centre, and has been provided with two (2) opportunities, one to lease the shop on a monthly basis the other to purchase the shop outright. She is also considering some short-term financing options to get the business up and running. She wants to use the funds to buy stock, organising advertising and buy point of sale equipment and is seeking your expert advice and which is the best type of finance to use.

Her goals are to have this operational in the next twelve (12) months. She wants to organise the shop in the next nine (9) months and have everything in place to commence trading three (3) months after that.

In this task you are going to complete the following

• Assess Kellys Needs
• Present Kelly with alternative funding options for her consideration

Steps to Take

Answer the following questions

PR 2.1 Based on the initial call from Kelly, identify the following:

i. One (1) legal requirement for each of the following:

Establishing the business

Structuring the business

Financing the business

ii. One (1) financial requirement for each of the following:

Establishing the business

Structuring the business

Financing the business

Guidance: Your responses must be applicable to the business activity and the new business structure.

Clients business activity:
Clients business structure:
Legal Requirements	Financial Requirements
Establishing a business:	Establishing a business:
Structuring a business:	Structuring a business:
Financing a business:	Financing a business:

PR 2.2 Research short term financial options that Kelly could use to purchase stock and buy point of sale equipment and identify financial processes for your client. More detail is provided below:

1. Identify two (2) financial options suitable for the clients expectations, goals, and objectives.

• Briefly describe each financial option, including how it can help the client achieve their expectations, goals, and objectives. Each discussion must be 60-100 words.

2. Identify two (2) financial processes that the client can implement in their business.

• Briefly describe each financial process, including how it can help the client achieve their expectations, goals, and objectives. Each discussion must be 60-100 words.

Eg relate these processes to buying stock, buying equipment and general running of the business. Think of what you would implement and suggest about how you do things financially when setting up a new business

Financial options	Description
Financial processes	Description

PR 2.3 Analyse Capital Expenditure Options

As discussed earlier, Kelly has found two (2) alternative options for funding the shop in the shopping centre. One to lease the shop on a monthly basis, the other to purchase the shop outright.

Your task is to perform the following evaluation methods and advise which option is the most suitable.

1. Calculate Accounting Rate of Return
2. Calculate Payback Period
3. Calculate Net Present Value

Financial information for the two alternatives is as follows:

Please show your workings for each evaluation method.

You will use your findings in this task when you meet with Kelly in the following task

PR 2.4 Meet with Kelly to outline your findings in regard to funding alternatives from tasks completed in PR 2.2.and PR 2.3

This part of the assessment is a role activity. You will be roleplaying a discussion with Kelly Tate (your client), to discuss funding alternatives that you have found in the previous tasks.

So, in this discussion you are going to present Kelly with your findings from Tasks PR2.2 and PR2.3. In task PR2.2 you had to suggest two (2) short term funding alternatives. Present these to Kelly and discuss the advantages and disadvantages of each and then decide on which option you are going to choose. Once chosen decide the timeframe for this to be implemented.

In task PR2.3 you had to evaluate between two (2) options of how to fund the shop either purchase it outright or rent on a monthly basis. Present your findings to Kelly and discuss the advantage and disadvantages of each and decide which option is best. Once chosen decide the timeframe for this to be implemented

In this discussion you must cover the following items:

• Confirm your clients goals, expectations and objectives
• Discuss short term financing options for setting up the business from PR2.2
• Discuss options for the purchase or lease of the shop from PR2.3
• Discuss timeframes for implementation of these based on your clients goals

After this meeting:

• You should complete the action plan template provided in the following pages. So, make sure that you discuss everything that is in this action plan.

Cost of investment Life of asset Annual depreciation (straight line) Annual Sales Annual Operating expenses Scrap Value Purchase Lease 860,000 1,000,000 4 years 4 years 215,000 250,000 1,500,000 1,363,246 1,170,000 1,000,000 0 0 1. Operating Expenses excludes annual depreciation 2. The Income Tax Rate is 30% 3. The req rate of return is 8% PV Factors for 8% are: Year 0 - 1.000 Year 1 - 0.9259 Year 2-0.8573 Year 3-0.7938 Year 4 -0.7350 Cost of investment Life of asset Annual depreciation (straight line) Annual Sales Annual Operating expenses Scrap Value Purchase Lease 860,000 1,000,000 4 years 4 years 215,000 250,000 1,500,000 1,363,246 1,170,000 1,000,000 0 0 1. Operating Expenses excludes annual depreciation 2. The Income Tax Rate is 30% 3. The req rate of return is 8% PV Factors for 8% are: Year 0 - 1.000 Year 1 - 0.9259 Year 2-0.8573 Year 3-0.7938 Year 4 -0.7350