Question
Sophia After graduating with a diploma in business administration in Montreal, Sophia got hired as an assistant to Frank, the director of operations at a
Sophia
After graduating with a diploma in business administration in Montreal, Sophia got hired as an assistant to Frank, the director of operations at a local tech company. She has been working at the job for the past three months. Her role includes scheduling and attending meetings, sending emails, and booking travel and entertainment for visitors to the company headquarters in Montreal. She works part-time five days a week from 8 am to noon and is paid about $31,000 annually.
During her free time, Sophia volunteers as a cleaner for a not-for-profit organization called Keeping It Clean. The organization supports people with mental and physical disabilities by helping to keep their homes clean. The organization is run by donations made possible by large corporate donors, community partners, and volunteers like Sophia.
Although she enjoys the hustle and bustle of the corporate environment, Sophia feels much more satisfied with her volunteer work with Keeping It Clean.
Sensing that she may not be happy, Frank has offered Sophia a full-time position with the company, upping her salary to $62,000 per year plus benefits.
At the same time, due to her enthusiasm and great effort at Keeping It Clean, the President of the not-for-profit organization has offered her a position as Head Coordinator. This position would entail working more complex jobs and scheduling/coordinating the other volunteers within the organization.
Even though Sophia is excited about both offers, she has always wanted to pursue entrepreneurship. Hence, she is contemplating starting her own cleaning business. To kick things off, she has researched and gathered some numbers. Accounting was the worst subject in her diploma, so she seeks your help analyzing her options.
Sophia sees a trend of individuals getting busier and, consequently, needing more time or energy to keep their homes clean and organized. With her home cleaning/organizing business, she could help people maintain tidy and organized homes. Also, due to the pandemic, corporations and larger residential complexes seek more frequent cleaning to reduce pathogens, viruses, and bacteria.
With the help of her parents, Sophia has saved $7,500 to invest in her business.
If she were to start her own housekeeping business, Sophia forecasts these figures:
Type | Cost | Frequency | Average Time | Tasks |
House cleaning for individuals | $65/hour | Once a week | 2 hours | General Housekeeping, dusting, bathrooms, deep kitchen scrub, mopping floors, and vacuuming. |
Common Areas of Residential Building | $45/hour | Twice a week | 4 hours | Vacuum hallways, spray down windows and doors, clean walls and floors of elevators, and clean gym or common facilities in apartment buildings. |
Corporate Cleaning | $36/hour | Five days a week | 2 hours | Daily dusting, cleaning floors, cleaning surfaces, restocking supplies, and emptying trash cans. Cleaning individual offices, restrooms, break rooms, and common areas. |
Special Projects | $75/hour | As needed, likely once a season | Minimum of 16 hours (usually spread across a weekend) | Specialized cleaning or organizing projects, such as deep cleaning carpets or managing files. |
Clou dBnB | $100 per job | Higher frequency during tourism seasons - winter and summer | Flat $100 per cleaning. Varies from 1 hour to 3 hours | Vacation short-term rental properties that need to be cleaned between stays. |
For CloudBnB, Sophia plans to find short-term rental property owners nearby and directly market her cleaning services. She has seen job postings for CloudBnBs located in Whistler. Although these would be far from home, they could offer lucrative profit opportunities. However, Sophia knows that CloudBnB rentals depend on tourism and usually spike in the winter for the ski season and the summer for hiking.
Sophia estimates that she can generate some quick success in her first year based on her existing connections and some word-of-mouth marketing. She believes she can book 15 individual houses every week, five residential buildings, four corporate cleaning clients, ten special projects, and four consistent CloudBnB contracts in the summer and winter.
She informs you that her ideal workweek includes 30 hours (including commuting). She wants to continue volunteering one day a week with Keeping It Clean. She wonders about her company's service mix and how it can maximize revenues through the work hours invested. She also wonders if charging per hour or on a per-project basis is better.
Sophia will need about $600 in supplies, including gloves, masks, cleaning material, dusters, garbage bags, liquid bleach, and the like to get her business started. She will likely need to replenish these supplies once a month.
She uses public transport but wants to purchase a gas vehicle to drive to and from various places and help carry her supplies. She is considering doing a pros and cons analysis of buying versus leasing a vehicle. She has found a 2019 used car on sale for $17,000; she is also considering hiring a hybrid vehicle from the dealership for $80 a month at 6.99% interest with $3,000 as a down payment. She thinks either car will last her five years.
Sophia is also planning to purchase an industrial vacuum cleaner for $900. She's unsure whether this and the vehicle would be recognized on the balance sheet or the income statement.
Sophia is looking into different advertising methods to boost sales and believes the best way is to start a website. She has a friend, James, who is a tech wiz and is willing to help create and host a website for a one-time fee of $3,300. She plans to boost her website through Google Ads and anticipates it will cost $130 monthly.
With the additional investment in advertising, Sophia expects the number of customers to increase by 25% for each type of service.
James has also offered to be brought on as a 33% business partner and is willing to cover the cost of creating the website and the advertising costs with Google. James will also take on the accounting tasks if Sophia bumps the partnership share to 50%. Sophia is uncertain whether to accept James's offer- he has a bachelor's degree in software engineering and tends to have a stubborn personality at times.
Sophia has also spoken to the bank, and it is willing to provide her with two products:
a) a 7-year loan of $20,000 at 8.25% per year requiring monthly repayments, or
b) a revolving line of credit of 20,000 at 8.00% per year
Sophia wants a detailed analysis of how much she will need to borrow and which structure is better for her. She doesn't understand the difference between a business loan and a line of credit, so an explanation would also help.
Since Sophia isn't great with projections and numbers, she asks you for help deciding if this business is lucrative enough to pursue and if she should quit her assistant job and volunteer role. She is also wondering about the importance of maintaining accurate records in general. She has never run her own business and isn't sure which business structure to implement and how to start dealing with bookkeeping. She wants some quick advice on journal entries, T-accounts, and the components of an income statement. Sophia also wants ratio analysis, such as profitability indicators and return on investment or assets.
Sophia wants specific advice on what she should do. She wants to know if pursuing Sophia's Housekeeping business is a good idea or if she should accept one of the other job offers. She wants detailed advice on business strategy, financing, ethical considerations, etc. She is open to advise beyond what is discussed in the case, but it should be relevant to her situation.
create an individual case assignment on this.
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