Sharice is the owner of a small business called Lil’ Local Goodies. She started the business two years ago, selling homemade crafts and baked goods out of her garage. Quickly, Sharice expanded to selling products made by friends and family too. Half of the proceeds from these sales go back to the producer, but Sharice gets to keep the other half. Here are some of Sharice’s numbers from the past two years, as well as projected numbers for the upcoming year:
|Sales of own crafts||$3,450||$2,870||$3,000|
|Sales of others’ crafts||1,530||6,740||12,500|
|Sales of own baked goods||2,110||1,960||2,000|
|Sales of others’ baked goods||1,840||13,000|
|Cost of goods sold- crafts||560||470||500|
|Cost of goods sold- baked goods||780||650||700|
|Meals and Entertainment||0||320||500|
Sharice’s numbers are under the assumption that she will rent a booth at the local farmer’s market for two weeks in the summer, hiring her nephew to run it for $750 a week. The added sales front and marketing effort is expected to give Sharice’s sales volume a 20% boost next year (already included in the projections).
Sharice is considering buying a new woodworking machine that will allow her to work more quickly, increasing her crafts production by 33% each year. The machine would cost $2,000 and last four years (no salvage value). Sharice is wondering if this is a smart investment, considering her current trends/projections for craft sales. To finance the machine, Sharice can sign a $2,000 bank note due at the end of three years. Interest will be charged at a 5.50% rate and due at the end of each month. Alternatively, a friend has offered Sharice the $2,000 for a 5% equity stake in her business. Sharice is wondering which financing option would work better for her.
Also, Sharice is weighing the pros and cons of incorporating her business. She knows the fees for incorporating will be about $1,000. Additionally, she will need to spend $2,000 a year on accounting fees, compared to only $500 now. Sharice isn’t sure what her current tax situation is like, and how it might change after she is incorporated. She wants to make sure she isn’t missing anything important- her accountant, Gary, has been extremely busy and non-responsive for the most part. Sharice recently asked Gary about home utility costs, totaling $200 a month. Sharice believes she uses 30% of her home for business purchases. She is also wondering about her vehicle costs which total $300 a month (estimated 25% business use).
Finally, Sharice wants a detailed analysis of how her business is progressing. She wants advice on her trends, business ethics, business strategy, and other relevant matters. Sharice welcomes any recommendations, as well as any questions to her which will help you better analyze her business.
Please prepare a business memo to Sharice, addressing all issues raised in this case.
It has to include all of the following below:
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