Sam lives in Burnaby, British Columbia with his parents and younger sister. He graduated from high school in 2019, uncertain about his career. He had a 78% average and played varsity football throughout high school. However, an injury halted his athletic career in his graduating year, so he missed out on a scholarship to attend the university of his choice, making post-secondary education more financially challenging.

Since graduation, Sam’s family has been pressuring him to try and get a job while he figures out his future. One day, Sam was mowing the lawn and his neighbour inquired if he could also mow their lawn, for a fee. Sam obliged, and it took him about an hour and half. He decided to charge the neighbour $30 cash. The neighbour was happy with his work and asked Sam to come every three weeks to mow the front and back lawn. They shared a handshake and Sam was enthusiastic about this new arrangement.

From there, Sam’s summer was occupied by his new business. As a result of neighbours driving by and quick word of mouth, his customer base grew to 25 lawns that summer.

Sam realized he enjoyed working outside and the money was good, so he put his job search on hold. During off-work hours, he watched landscaping videos to learn about different flowers and foliage, along with using different stones and bricks to create small gardens.

Since 2019, Sam has been growing his business steadily. He has started maintaining records of important information including the number of customers for each of his services, the price of each services provided, and some of the incurred costs. Admittedly, he doesn’t do a very good job tracking this information- his focus is more on the outdoors.

Number of Customers - annually	2020	2021	2022
Cutting Grass	30	35	37
Landscaping	0	5	7
Pruning	20	15	10
Gardening	8	8	8

Sam mentions that some customers are the same but request multiple services.

Price Offered Per Service	2020	2021	2022
Cutting grass	30$	30$	30$
Landscaping	15$	15$	15$
Pruning	45$	45$	45$
Gardening	50$	50$	50$

Sam mentions that the cost of the service is not based on how much time it takes, it’s based on each job.

Expenses	2020	2021	2022
Fuel	525$	675$	400$
Supplies	200	250	175
Tools	1000	375	200
Maintenance	-	250	500
Marketing flyers	-	250	190
Plants	150	195	350
Dirt and soil	60	90	120
Fertilizer	20	80	140
Lawnmowing Equipment	1200	200	100
Watering hoses	50	-	-
Watering containers	300	-	-
Waste Disposal	60	65	75

* The values for 2022 are from January to September 2022.

Sam doesn’t know the difference between the income statement and balance sheet but would like you to prepare a proper income statement and perform some sort of horizontal or vertical analysis on his figures. He is open to any insight that you can provide on running his business.

The work that he does is cyclical in nature. In the fall, he is busy with pruning and gardening. The winters are relatively quiet and business is slow. In the spring, there is a lot of replanting and gardening, while the summer requires a lot of cutting grass.

Sam works 6 days a week in the summer to keep up with demand, but the fall and winter tend to be slower. He is considering advertising at his local high school to find some students to help him in the summer months. He’s planning to pay them about $16 per hour but he has heard that some in the industry hire students for under minimum wage and pay them cash. He wants your advice on how to proceed. Alternatively, Sam can work with his friend George who is going through business school and has some free time in the summers. George says he wants to be an equity partner and is willing to pay

$8,000 to be in business together for the long term (50% ownership each). He says he’ll help Sam with the bookkeeping as well. Sam wants a detailed analysis on hiring George as an employee or bringing him on board as a partner. Sam would love an extra $8,000 in his bank account but wants to do his due diligence.

Sam’s sister, Susan, is taking accounting classes and has informed Sam that he has to record depreciation on his lawnmower and other equipment. Sam purchased all of his equipment in 2020 and expects it to last for around 8 years with the current level of use. One of the lawnmowers was acting up this year so he paid $500 in maintenance. The repairman said it should extend its life for another 2 years with the installation of a new power belt. Sam has classified this as an expense but is unsure of its implications. Susan also mentioned for a proper income statement, he has to record cost of goods sold and operating expenses and assign depreciation as overhead. Sam had a long day and didn’t really understand what Susan was asking of him. He is trying to decipher how can he apply depreciation as an overhead expense and why tracking costs really matter when he’s making money.

When purchasing more fertilizer from his local garden shop he saw a motorized driveable lawn mower on sale for $3,000. With this, he expects to increase capacity and his lawnmowing capabilities by 6 times. He would still charge $30 per job but would be able to do it three times as fast and thus increase capacity. The added cost of fuel is estimated to be $200 per year. Sam is unsure whether it’s a good investment and wants to see what the net present value calculation returns. He is also curious about what the cash payback period would be. If the investment makes sense, Sam can borrow the money on a 6.25% line of credit.

Given that business is slow in the winter, Sam wants to do an Arborist certificate which will take two years and costs $6,000. He is wondering if he should first save up the money, borrow it as a student loan, or forgo it altogether. With this certificate, he is hoping to gain more fruitful employment with the city or a golf course and earn $35 per hour. He is uncertain in what decision to make.

Lastly, Sam thinks that with an additional employee he will have some excess capacity which will help grow his customer base. He is wondering if it is worthwhile to put some more effort into marketing.

Currently, he prints and distributes flyers around his neighborhood. Some of his satisfied customers are happy to distribute flyers on his behalf. By spending $230 a month on newspaper advertisements, he believes the next two-year annual growth rate can be boosted to 4.75%. Otherwise, the growth will be similar to what it has been historically.

Sam wants a detailed analysis of his business plan. He wants advice on ethics, business strategies, and other relevant matters. Sam welcomes any recommendations, as well as any questions to him which will help you better analyze his options. Please prepare a business memo to Sam, addressing all issues raised in this case.