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Sample Business Plan Paper on KC Bookkeeping Service Company

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Sample Business Plan Paper on KC Bookkeeping Service Company

 

A.  Executive Summary

A1. Company Identification

            The KC Bookkeeping Service Company seeks to provide book keeping services, payroll, and tax preparation services to organizations and small-scale businesses that would want to outsource their functions instead of employing full-time bookkeeping staff and specialists (Barrow, 2012). The full range services like tax and accounting management services the company seeks to provide to small businesses and large organizations in Houston will allow the owners to save finances over in-house accounting alongside ensuring compliance with tax laws. The decisions to operate beyond a one-person model will mean investing in series of marketing plans and staff to improve performance and maintain higher growth. The company will provide accounting and other bookkeeping services with the oversight of CPA (Barrow, 2012). This would mean hiring professional bookkeepers and graduate student managers while maintaining lower fixed costs. As already stated, the company will be located in Houston, but its operations will extend beyond TX market since the company’s future objective is to establish an online retail site that would help reach clients across the world.

A2. Mission of the Company

            In addition to training business owners on financial matters and tax compliance, KC Company’s mission is to provide bookkeeping and tax management services to small, medium, and large business organizations across Houston and in other neighboring states, and to be a highly competitive bookkeeping service company that provides accounting and bookkeeping services according to the CPA guidelines (Barrow, 2012). The financial training is expected to allow business owners to make valuable management decisions in areas of financial control while the bookkeeping services will ensure transparency in finical reporting and service allocation in particular business organizations. 

A3. Business Goals

            In fulfilling its mission, the KC Bookkeeping Company aims at launching several new line of services across Houston as well as launching an online accounting site. The many small business branches will allow the company to reach as many clients as possible and to maintain an efficient and effective service delivery (Clark, 2011). Similarly, the decision to establish an online accounting site will allow the company to reach and serve clients in far markets. These two objectives are in line with the company’s major goal of earning and increasing annual revenues. Within the first three years of its operations, the KC Company targets an annual profit growth of 70, 000 dollars. The profit target can only be reached if the company will be able to improve its services in a way that fulfills the needs of clients (Clark, 2011). This would mean investing heavily on employees, equipment and increasing the number of part-time bookkeepers as the business grows.

            In general, the goals are categorized according to the interests of owners, marketing needs, business, and client’s satisfaction requirements. On the side of owner, the business will ensure higher profit growth alongside creating opportunity for professional recognition. As for the marketing purposes, the business will facilitate the provision of accounting services to businesses that are willing to outsource such services alongside ensuring tax compliance. As per the business needs, the company will expand and maintain higher sales over the three years of its operations and to become highly completive in the industry (Clark, 2011). On the side of client’s satisfaction, the company aims at providing quality services, making its services known across the markets and maintaining regular interaction with clients.   

A4. Keys to Success

            For the Company to succeed in its operations, KCmust build trust with clients, maintain an up-to date accounting practices and principles, provide training on the best business practices that can help clients increase their revenues, ensure legal and ethical practice alongside maintaining high level of transparency in reporting finances. Building trust would mean providing quality accounting services to customers, remaining transparent throughout its engagement with customers and ensuring that both the accounting and training services are charged at relatively lower costs.

 

 

 

 

 

 

B.   Company Summary

Suggested length of 4–6 pages

B1. Industry History

Traces of financial and other numerical records have been in most cases been associated with the various stages of civilization within the commercial sector. The first of such evidences were the numerical records found in Babylon, and financial statements for farms and estates found in Rome. Following the developments of commercial republics in Italy, the double-entry concept of bookkeeping was invented to assist instructors keep manuals that would later be transferred into special books. In early 19th Century, the industrial revolution that took place in Europe provided enough grounds for the incorporation of accounting and bookkeeping services as one of the key functions of industrial managers. These functions later transformed into more accurate financial records constructed under specific guidelines and monitored by certified accounting bodies. The rise of manufacturing sector, the trading and shipping industry as well as the subsidiary service sector outnumbered professional accountants, becoming an opportunity for certified accountants to form corporations, employ graduate and undergraduate students to assist in the management and control of finances.

The accounting and bookkeeping industry was established primarily to provide accounting, bookkeeping and auditing services across businesses, both public and privately owned. The industry is made up of businesses providing data processing and tabulating service in addition to the bookkeeping, accounting and audit services. Similarly, businesses in the industry provide tax preparation services, and assisting other businesses to remain compliant to a country’s tax system.

            Since its establishment, the accounting, auditing and bookkeeping service industry has grown to become the economic engine of America and the entire world. It is clear that the world’s capital market rely heavily on financial statements prepared and reported by certified independent auditors. From early 2000, following the series of financial scandals that rocked the U.S economy, the close relationship between the accounting industry and the economy has become much apparent. The corporate scandals and the numerous financial frauds that took place between 2000 and 2002 have made governments across the worlds to consider certain acts that would help crack down fraudulent accounting practices, bring sanity is organizations and also boost investor’s confidence.

The US government was not left behind in this fight, and in attempt to eliminate fraudulent activities within the financial systems, the Congress stripped the American ICPA of its regulatory roles and gave a new federal board the audit oversight responsibility. The new federal board in the implementation of the Sarbanes-Oxley Act of 2002 brought faith and trust within businesses and individual investors who can now outsource their bookkeeping, accounting and auditing services to another business entity.

B2. Legal Form of Ownership

The company will be registered as a sole proprietorship with the owner as the CEO and chief accountant. Other roles will be distributed to staff members following the outlined terms of employment and levels of experience. The owner will be the sole decision maker even though the company structure allows for the position of one associate. Being a sole proprietorship founded on professional principles, the company will at all times employ professionally qualified individuals to take full control of the accounting and audit cervices, and all the functions related to bookkeeping.

B3. Location and Facilities

KC Bookkeeping Service Company will be located in Houston, TX market and already mentioned, the company will serve Houston town and neighboring states with various products, accounting and tax compilation services. Apart from the 50 by 50 meters piece of land and the business premises, the company will acquire computers, bookkeeping software, calculators, business cards, internet subscriptions, photocopier, business telephone, fax machine and scanner, paper, pens as major office suppliers. These equipment and facilities will be fundamental to the operations of the company; hence, their purchases and proper maintenance will be necessary. The bulk of funds will be used to purchase the mentioned facilities, provide maintenance services and replace worn or spoilt equipment.

B4. Management Structure

The KC organizational plan will include the position for senior management whose main roles will include maintenance of day-to-day operations, controlling company finances, performing staff recruitment and providing remuneration services to employees. Below the senior management is the position of operations and business administrative staffs. The functions of the customer service management will be to ensure better business relationships, maintain proper records of clients, and operate as the link to external environments. The facility management on the other hand will have the responsibility of conducting regular checkups to ensure that the company’s facilities are in the right condition, offer regular maintenance service to the company facilities, conduct purchases of new equipment but after the approval of the senior managers. The administrative staff will include the accounting, sales/marketing and the administrative departments. The accounting department will provide the accounting and bookkeeping services to clients and to KC Company. However, the part of accounting and bookkeeping for other businesses being the main function of the company will require the attention of the various departments of the company. The sales and marketing department will play the role of marketing the company and its services or products to potential customers alongside ensuring that customers have a better understanding of the business operations. The department will be conducting sales across the markets identified and maintaining a close relationship will clients since through them, the clients can reach the company very easily. The administrative department on the other hand performs all the duties relating to administration like registering new clients, keeping employees records and their payment details and coordinating the activities of all the departments.

Table 1 below shows the projected number of personnel; a projection bound to change based on business conditions, levels of experience and duration of employment.

Table 1: Projected number of personnel for the first three years of establishment

Year

One

Two

Three

Owners

1

1

1

Associates

1

1

1

Bookkeeper

3

3

3

Tax Staff

4

5

6

Administrative Staff

1

1

1

Totals

10

11

12

 

According to business requirement, the owner and associate must have masters in financial accounting and business management, some levels of experience in corporate managements, skills in administrative planning and records of tax compliance. The bookkeepers can be either undergraduate accounting students on practice or graduate accounting students with relevant knowledge on accounting, bookkeeping and tax calculations. The tax staff should also have similar accounting knowledge but specific to tax compilation. The administrative staff must have skills in human management and employees relations, must exhibit higher levels of understanding on customer management and profiling. 

B5. Products and Services

            The company will provide tax services, costs accounting services, quick-books services and other bookkeeping services. The tax services will include tax preparation, tax planning, and providing solution to tax problems like audit representation, taxes owed, IRS issues, and bankruptcy as well as payroll tax issues. The cost accounting services will include financial audits, cost and margin analysis, financial projections and setup for processing credit cards. The quick-book service will include setup for quick-books sales, training on quick-book entry, quick-book tips and quick-tune services. Other bookkeeping services will include payroll processing, accounts payable entry, accounts receivable entry, sales tax processing, calculations related to back statements, inventory management, preparation of financial statement and other financial entries.  

C.  Market Analysis
C1.  Target Market:

KC Company has divided its target market into three major segments; the non-employer firms, extremely small business organizations and other small business organizations. The non-employer firms are those firms whose owners are merely concerned with protecting their tax liabilities and the best approach to ensuring that personal taxes and business tax returns balance. In this category, we have the buyers of quick-books and tax preparation services, and because these two service alone cannot meet their liability requirements, KC Company is confident that the non-employer firms will at one point decide to outsource their bookkeeping services before turning to in-house bookkeeping services.

The company also targets a group of very small businesses that require payroll services, bookkeeping and tax preparation services but in small scales. Such businesses are known to have the tendency of exercising control over their finances but can still be convinced to outsource their account and bookkeeping services to a trusted company. KC Company targets these groups of businesses because they are known to make greater use of accounting services since majority cannot afford to use the CFO services. Even though these businesses do not require full times bookkeeping services, which makes it difficult to hire a bookkeeper, they still need part-time bookkeeping services, hence an opportunity for KC company to invest in this market.

The category of other businesses includes those that will require in-house financial management and bookkeeping services. The in-house businesses are in most cases concerned with saving money by outsourcing financial management and bookkeeping services in which case they seem to be comfortable with their roles as cash producers and not financial auditors.

In general, KC Company target market as at now are average clients ranging from small to middle-sized business organizations within Houston, TX market. The common characteristics the company will be focusing on within the first few years of its operations will include businesses whose annual revenues exceed 250000 dollars, those that live and operate within a radius not more than 20 miles from the company’s location, and those businesses that will be ready to spend close to 300 dollars per month on outsourced bookkeeping services.

C2.  Industry Analysis

As already mentioned earlier, KC Company will be operating in an accounting and bookkeeping industry. While developing a business plan that will meet the targets of clients, it is important to determine some of the current activities taking place in the industry. The accounting and bookkeeping industry is known to be highly fragmented and consists of groups of practitioners ranging from small firms to large institutions providing auditing services. These small firms and institutions are owned by respective accountants in the US with higher qualifications in areas of accounting, Bookkeeping, financial reporting, training and control. Currently, the accounting and bookkeeping industry is served by over 650,000 accountants some operating personal businesses, some employed in different firms yet others operating as a corporation. The available businesses and companies inject close to 40 billion dollars into the industry every year and employs about 420, 000 American citizens and a significant number of foreigners. With the emergence of new business across America, it is expected that the demand for accounting and bookkeeping service will increase offering a viable market for new businesses. Added to a more expended market is the fact that the US now operates under new tax systems, which to this end has not been adequately understood by majority of the population. This is an opportunity in the industry, and the decision to provide the range of services mentioned in our previous sections is rational. Contemporary issue in accounting and bookkeeping industry is the expansion through the provision of ancillary investment management and lending services. This offers a future opportunity for the KC Company to expand its operations and even include mortgage origination and loan rebate services. 

C3.  SWOT Analysis

S (Strengths)

·         Skilled personnel

·         High customer retention 

·         State of computer system and software

 

 

W (Weaknesses)

·         Inability to generate enough billable hours

·          Limited knowledge on marketing activities

·          Over-dependence on tax preparation work

O (Opportunities)

·         New business ventures

·          Increasing income levels of the population

·         Positive perceptions of the population and small businesses

 

 

T (Threats)

·         Increasing competition

·         Highly sophisticated software

·         Nature of federal tax laws

From the table above, the company’s strength will rely on its ability to recruit highly experienced staff. The accounting, auditing and bookkeeping practices require proper understanding of the accounting principles in line with the specifications of CPA guidelines (Khosrowpour, 2001). By employing individuals from recognized accounting institutions, the company will be in a position to improve its operations in a way that fulfills the changing needs of customers. On the same note, the company’s ability to use the most current computer systems and latest software will create opportunity for enhanced productivity and possible diversification. The company can make its services fast and efficient through better network connections, hence increase the number of customers that can be served in a day (Khosrowpour, 2001). Finally, under strengths, the company aims at ensuring high client retention through improved services. Through client retention, the company expects to obtain consistent referrals and even higher payments. This means that the services the company will provide must be of higher quality, efficient and effective based on the customer’s interest.

On the weaknesses, it is a common understanding that businesses within the industry cannot generate enough billable hours during their off-season since most staffs operate under full time employment (Khosrowpour, 2001). This limits the amount of revenues the company will be able to generate during off-seasons. Secondly, the company may be tempted to employ only those individuals with accounting skills while ignoring areas of marketing, which is also important for the company. In situations where the company decides to concentrate within its area of professionalism, the available staff is considered inexperienced in marketing activities (Khosrowpour, 2001). Based on this limited understanding, the company will face challenges when it comes to developing a marketing plan and other market entry strategies. The third weakness in the company’s overdependence on tax preparation work, which may prevent the decision to diversify into other important activities. Even through businesses find tax preparation service a fertile area to explore, it is also possible that tax preparation work could be seasonal and in line with economic conditions (Khosrowpour, 2001). The company at one point will be facing retarded growth in its revenues, especially when the country is facing low economic growth.

The new business ventures provide opportunity for further investment in the industry since they will equally seek for the accounting and audit services provided by the bookkeeping companies. The increasing income of the population make individuals to have a complex tax-planning requirement and stable planning requirements, meaning that there is still opportunity for further investment. The population also has positive perceptions on the services offered by the companies in the industry, and the decision to serve businesses within a specific range increase trust on the side on clients.

The industry consists of many firms operating as sole proprietors, and new firms continue to enter into the market. The many existing firms and new one pose threat of competition to KC Company because all these companies target same customers and suppliers (UNCTAD, 2005). The company will also face a threat of more sophisticated software and computer systems that are currently replacing the roles of CPA guidelines for tax preparation and other auditing services. This would mean that the skills learnt in class would at one point be considered irrelevant or inadequate to fulfilling current accounting needs. The federal tax laws and tax calculation approaches are based on legislations that may lead to flat income tax or reduce billable hours for personal taxes.

C4. Competitive Analysis

From the analysis conducted, it is prominent that the accounting industry consists of several independent accountants, small business operating as bookkeepers and small firms. The existing small businesses and accountants compete for the same customers, and therefore work towards improving their activities to meet the needs of customers as a way of gaining competitive advantage over other businesses (UNCTAD, 2005). Even though the TX market has not yet been explored extensively by corporate bookkeeping companies, there are still possibilities that the business operating in America and close states like Chicago are major threat to KC Company. One of such businesses is the Sorcerer’s Accountants and Bookkeepers that provides almost similar products and services KC Company aims to supply in Houston.

Just like the case of other businesses, KC Company according to Porter’s Five Forces will be facing rivalry, power of customers (buyers), power of suppliers, threat of substitution, and barriers to entry. One the side of rivalry, it is clear that the industry is made up of aggressive firms and individual accountants are concerned about prices, products and service innovations, marketing and customer’s relations as the driving forces for potential profits. For example, the businesses within the industry are known to be aggressively seeking new clients by promoting new service plans, networks and technological coverage. The businesses, firm and individual accountants face slow growth in market relative to the ease with which clients stand the chance of switching customers. The fact that customers can switch to new firms with better service plans make existing firms and business envious an in the end would want to eliminate such competitors.

Since the firms operate in perfectly competitive markets, competition is set forth by the large number of substitute products and services in the industry (UNCTAD, 2005). This is because customers have more alternatives and can choose from services or products that sell at relatively lower prices. This can limit the operations of KC Company, especially if customers realize that there are other businesses providing the same services at lower prices. At the same time, existing businesses and accountants may decide to lower their prices intentionally to make new firms exit the market and latter enjoy higher market shares. From the above discussions, it is true that the firms and small businesses will be service by similar suppliers of equipment, labor and other related products and services (UNCTAD, 2005). It is therefore very possible that with the kind of competition identified in the market, the suppliers will want to take advantage and control these firms in order to obtain higher profits from their suppliers. In an event this happens, new firms will have higher start-up costs that may discourage them entering into the market. The same situation may prevent KC Company from meeting its performance objectives.

With over 700, 000 accountants and firms providing bookkeeping and accounting services, it is a common experience that the buyers will have control over the market (UNCTAD, 2005). In an industry where the customers have the power to control the market prices, firms are challenged and at times may be compelled to close down. The accounting and bookkeeping service industry faces situations where customers have the power to decide the amount they would want to pay for the services they get from accountants and bookkeepers. To some businesses and firms, employing an accountant is more profitable that outsourcing this service to another different firm, which in the long run could be costly (UNCTAD, 2005). The lower costs and decisions to employ personal accountants and bookkeepers limit the amount of sales and profits for bookkeeping firms. Market entry by KC Company could be difficult because of the higher initial capital requirements and unpredicted behaviors of customers who would wish to have a cultivated and more trusted distribution channel. It will take time for customers to develop trust on the services provided by the company, and this would mean low profit growth in the early years of the company’s operations (UNCTAD, 2005). On the same note, KC Company will find it hard competing with existing players in the industry since these players have a strong market base and strong ties with customers, which cannot be broken easily.

Based on the mentioned challenges, KC Company must develop a unique market entry strategy in order to convince clients that the services the company offers are so far the best in the region. Within the first three years of operation, the company must remain very close to its clients and ensure that the services provided give customers the highest level of satisfaction. Therefore KC Company should analyze the Porter’s Five Forces in relation to its weaknesses and strengths and in relation to the company’s ability to respond to the mentioned forces. In order to counteract the five forces, KC Company must work on a strategy of lowering its overhead costs, differentiating its service lines from the competitors’, remaining specific to the targeted group of customers.

D. Market Strategy
D1.  The company’s 4Ps of marketing

The company’s 4P’s will collectively make up the most appropriate marketing mix and identifies some of the key areas of business concentration. The company identifies product (service), price, promotion and place as the four most basic aspects that define the performance needs of the business.

Product/ price- The products and services the company will be supplying in the market are expected to give the highest level of satisfaction. The company will employ a team of qualified accountants, auditors and bookkeepers to enhance service delivery alongside maintain higher quality throughout the years of operation.

Price-On the side of pricing, the company will strictly operate within the price set by the industry, but where possible operate at relatively lower at lower services in order to attract more customers within its earlier periods of establishment.

Promotion-On promotional strategies, the company will use social media for advertisements, organize social events, public relations, engage in community services and conduct personal sale to meet the expectations of clients. The social media and other internet service will provide the best channel for communicating will clients. The company will also operate a private website that will facilitate online interactions, serve an extended global market, and improve the rate of service delivery. All the desired promotional strategies will allow the company to establish a strong market foundation for its products and services, become competitive in a market served by highly performing companies and businesses and also improve on market recognition.       

Place-On the side of place, the company will serve TX market and neighboring markets. Customers will be able to interact with the company within these markets or place special orders in which case the company will be in a position to send a team of employees to help with the accounting or auditing services based on the demands of the client. The company will also establish an online accounting site where clients will be in a position to place their bids for respective services.

D2.  Price List:

            The company will provide basic packages at 210 dollars per month and 360 quarterly including a computer entry for all monthly accounts payable, accounts receivable, balancing books to a business bank monthly statement and for preparing and providing a financial statement(United Nations, 2002). All other services like accounting, business analysis, bank reconciliation, tax preparation and tax balance analysis will be charged separate.

            The company will provide standard packages at 360 dollars per month and 1080 dollars quarterly including a computer entry for all monthly accounts payable, bill paying, entry for accounts receivable, customer invoicing, preparing monthly bank reconciliation statement and providing a company financial statement (United Nations, 2002). The company will charge a one-time setup fee of 50 dollars for payroll for ten or less employees and an extra 5 dollar for every additional employee.

The company will also provide premium packaging services at 515 dollars per month and 1,545 dollars quarterly for income taxes, payroll taxes and sales taxes. Additions bookkeeping services will include quick-book training or repair for 3 hours at 75 dollar per hour, sales tax return at 85 dollar per form and a travel charge for special orders within a radius of 50 miles at 30 dollars per trip.

D3.  Selling Strategy

            The company will explore online, face-to-face interactions, sales events and other selling strategies like social media marketing and customer referrals. Even though the company’s selling strategy will in most cases revolve around the areas mentioned, there will be need to vary the selling strategy with a focus on the identified needs of clients and the chosen market segments (Holtje & Shelly, 2010). Through employees’ interactions or face-to-face interaction between sales agents and customers in different market segments, the company will be in a position to expand sales for the services, stimulate growth through numerous market trials and build a strong foundation for referrals (Holtje & Shelly, 2010). This means that the company will have to work on a cost-effective sales campaign while focusing on direct marketing, service publicity, customers’ rewards programs, and advertising through online sites.

In other words, through the numerous selling strategies and campaigns, the company will be in a position to increase customer’s acquisition of the products in addition to establishing a strong foundation for discount sales. It is also possible that through the selling strategies, the company will be in a position to generate repeated business operations, increase sales capacity, establish a point of focus on customer’s trust and loyalty, expand on general investment, and improve on membership acquisition plans.

The main idea behind the mentioned selling strategy is for the company to improve its relationships with customers and expand sales by acquire new markets. With the objective of improving the business relationships with customers, the company will give free gift packages and redeemable vouchers for sales above a particular value. The company will also give a 10% discount for the services purchased within the first two months of operations with high servicing to meet the expectations of customers. This means that the company will keep a proper record of its clients to identify regular customers and allow a price waiver on subsequent purchases.   

D4.  Sales Forecast

KC Bookkeeping Service Company

Sales Forecast for the First Year of Operation

 

First year

Sales

$220,000

Direct Cost of Sales

($30,000)

Other Cost of Sales

$0

Total Cost of Sales

($30,000)

NET SALES

$190,000

 

            The sales are forecasted based on the expected market conditions like changes in household income, changes in household consumption, changing investment decision and changes in market prices (Holtje & Shelly, 2010). Household income affects the decision to save, which have a direct link to business investment and therefore individual spending on accounting services. The market prices also have impact on the customer’s willingness to apply for the accounting services. With adverse changes in market conditions, it is possible that the company will charge higher prices, which in turn will discourage customers from outsourcing accounting activities hence a reduction in amount of sales (Holtje & Shelly, 2010).   

E. Implementation Strategy
E1. Overall Strategy

The overall implementation strategy will aim at creating trust within customers, generating higher referrals and improving the overall communication to external markets. The company also aims at improving the quality of the services offered and ensuring that customers obtain such services at the most appropriate times (Fox, 2001). With the changes in global business accounting following the introduction of new computers and accounting software, the company understands the needs to create a base for higher competition, main professionalism in business operations and prevent any form of fraud that may arise within the company’s functions.

With an objective of controlling a greater share of TX market, the company seeks to remain highly aggressive to its intended marketing strategies. The strategy to extensively use social media in advertisement and in promotional activities will add to the company’s areas of competitive advantage such as process sourcing and procurement. The business management also understands the reasons for using the word-of-mouth promotional strategies, especially when it comes to customer referrals and new customer acquisition (Fox, 2001). Among the few groups of employees, the company management has identified a team of experts that will lead in areas of advertisement as one of the methods of market penetration. The team of employees will have a face-to-face interaction with clients and perform accounting demonstrations, get the views of the customers and refer them to the main company.  

The main objectives of the overall implementation strategy include:

  • Allowing time for the company to gain market recognition
  • Making regular contacts with clients and building trust through enhanced relationships
  • Studying market trends and be able to understand the changes in market conditions
  • Studying the competitors’ strategies in order to develop better counteractive strategies
  • Identifying those factors that will make the company become a market leader and one of the best online retail center for accounting services.

Table 2: Implementation activities and duration

Activities

Start Date

End Date

 Budget

Department

Office Registration

20/4/2015

24/4/2015

$1,000

Operation Department

Marketing Materials Design

20/4/2015

25/4/2015

$3,000

IT Department

Email and SMS database purchase

21/4/2015

30/4/2015

$4,000

IT Department

Online Payment Portal

23/4/2015

30/4/2015

$5,000

IT Department

IT System

22/4/2015

28/4/2015

$4,000

IT Department

Listing Charges on Business Directories

21/4/2015

29/4/2015

$5, 000

Administrative Department

Initial Marketing

21/4/2015

26/4/2015

$1,500

 

Computer and Equipment purchase

20/4/2015

24/4/2015

$22,000

Operation Department

Inventory purchase

20/4/2015

28/4/2015

$10,000

Operation Department

Total Required Funds

 

 

$ 55,500

 

 

E2. Monitoring Plan

Since KC Company aims at meeting its performance objectives within the shortest time possible, it is prudent the company designs a monitoring plan, which corresponds to the following areas: 

  • Analysis of customer’s referrals and purchase process within the first month of establishment. Based on this analysis, the company will be in a position to work on appropriate strategies like rewarding customers based on the number of referrals, pro-actively seeking feedback from customers to understand their satisfaction levels, and work towards fulfilling such needs.
  • To observe the changes in day-to-day market purchase, and better understand those factors hindering purchases or individuals’ decisions to outsource their accounting services.
  • Month-to-month review of financial performance in relation to financial position, and possibly revise entry prices to match the company’s profitability needs
  • Weekly review of sale returns and credit collection rates with an aim of reducing bad debts, which may inhibit future investments and further growth.
F. Financial Statements and Projections
F1. Forecasted Profit and Loss Statement

KC Company

Forecasted Profit and Loss Statement

For the 1st year of operation

Monthly Profit and Loss

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

Month 11

Month 12

Sales

12800

13100

15200

12850

16330

17260

17310

16690

17470

17690

16270

16030

Direct Cost of Sales

2500

2100

2400

2410

2730

3200

2590

2540

2350

2680

2070

2430

Other Cost of Sales

0

0

0

0

0

0

0

0

0

0

0

0

Total Cost of Sales

(2500)

(2100)

(2400)

(2410)

(2730)

(3200)

(2590)

(2540)

(2350)

(2680)

(2070)

(2430)

NET SALES

10300

11000

12800

10440

13600

14060

14720

14150

15120

15010

14200

13600

EXPENSES

                       

Payroll

1185

1300

3000

2200

3500

3750

3950

3500

4000

4000

3800

3600

Marketing/Promotion

965

1100

810

735

960

880

1000

890

990

970

925

900

Depreciation

0

0

0

0

0

0

0

0

0

0

0

0

Rent

1110

1110

1110

1110

1110

1110

1110

1110

1110

1110

1110

1110

Utilities

900

925

900

840

915

960

850

960

1025

1000

920

890

Insurance

340

400

600

360

420

602

790

500

635

600

550

560

Payroll Taxes

4000

3205

4020

3000

4500

4300

5000

4900

4800

4850

4600

4250

Software and Computer Expenses

1000

1560

1000

1090

1200

1050

1000

1000

1300

1300

1100

1090

Total Operating Expenses

9500

9600

11440

9335

12605

12652

13700

12860

13860

13830

13005

12400

Profit/loss Before Interest and Taxes

800

1400

1360

1105

995

1408

1020

1290

1260

1180

1195

1200

Taxes Incurred

30

650

450

325

295

608

260

470

260

190

365

310

Net Profit

770

750

910

780

700

800

760

820

1000

990

830

890

Net Profit (Loss) for the year: $ 10, 000  

Net Sales for the year: $ 190, 000

Profit margin: 5.26%

F2. Forecasted Balance Sheet

KC Company

Balance Sheet

For the End of Year One

 

2011

Assets

 

Current Assets

 

Cash

$40,200

Accounts Receivable

$10,000

Other Current Assets

$5,300

Total Current Assets

$55,200

Long-term Assets

 

Long-term Assets

$0

Accumulated Depreciation

$0

Total Long-term Assets

$0

Total Assets

$55, 500

Current Liabilities

 

Accounts Payable

$11,000

Current Borrowing

$0

Other Current Liabilities

$0

Subtotal Current Liabilities

$11,000

Long-term Liabilities

$0

Total Liabilities

$11,000

Paid-in Capital

$14,500

Retained Earnings

$20,000

Earnings

$10,000

Total Capital

$44,500

Total Liabilities and Capital

$55,500

Net Worth

$44,500

 

 

 

 

G. Financial Report
G1. Financial Projections

            The company’s financial projections does not include outside investment of owner’s investment but rather positive cash flows from the company’s operations. Even though the line of business chosen is capital intensive, it is necessary that the fixed costs be covered immediately by increasing revenues from the bookkeeping sales (Ferry, 2010). This projection is possible because the expectation is that at least 10 customers will require the company’s services each day since they are always ready to outsource their bookkeeping services, especially if they are sure to interact with a team of experts. The company will finance most of its activities from owner’s capital and borrowed finances because the amount of earnings expected in the first year of establishment will not be sufficient to guarantee continuous investment and expanded growth (Ferry, 2010).

The financial projections are developed based on the assumption that each of the employees will be in a position to work for at least 10 hours every day for 5 days for several months before the company reach its operational capacity. The other assumption is that the economic conditions will be favorable to guarantee better business operations (Ferry, 2010). In this context, the company will be in a position to utilize as little resources as possible in order to increase the revenues. The final assumption is that the market conditions will not restrict consumption and customer’s response during the first year of establishment will be high.

G2. Financial Position

The company’s management projects an annual revenue of $200,000 in year 1. The Net Income of the business will stand at $10,000 translating to a profit margin of 5.26% at the end of Year 1. From the financial statements, the company management does not project business loss throughout its operations. With a profit of $10,000 and an ending cash balance of $40,200, the company expects to meet its second year expenditure, expand operations and improve its venture into new markets.

The company is expected to operate with $55,500 as its total assets for the first year of operation while the total liability will stand at $11, 000. With a current ratio of 1.98 percent, the company will be running a healthy business since its liquidity position will be very strong. 

The company’s balance sheet and income statement give an overview of financial position of the company at the end of the first year. The flow of income as indicate in the income statement shows that company has stable financial systems that can help take care of minor expenses like transportation costs, petty expenses and other overhead costs (Fox, 1996). A more focused analysis of the company’s financial position brings us to the calculation of profitability rations like gross profit margin and activity rations like net profit margin. As a measure of the company’s profitability, the gross profit margin measures the inventory management needs (Fox, 1996). The gross profit margin is given as the ratio between gross profit and the company’s sales, and where the profit margin is seen to be declining, the company must reconsider its cost of production in relation to the rising prices.

For KC Company, the gross profit margin for the first year of establishment would be 7.5 percent. Any value the will be lower than the 7.7 percent will be an indication of lower gross profits and therefore the need to reexamine the expenses or the cost of providing the services against the prices charged. Another ration that could be used to determine the company’s performance is the net profit margin calculated as the ration between net profit and net sales. KC Company therefore has a net profit margin of 5.20 percent (Fox, 1996). This percentage shows that in addition to the overhead expenses, the company can still take care of the cost of other related activities without borrowing.

G3. Estimated Capital Needs

The owner of the business will be in a position to invest $44,500 from personal savings as initial capital. In addition, the business will take a short-term loan of $11, 000 to help meet the some of the expenses. The loan will be paid after 12 months with a fixed interest of $200 plus the principle loan amount.

Table 3: Source and Use of Funds Statement (The KC Company)

Sources of Funds

 

Source

Amount

Short term Loan

$ 11,000

Capital Invested

$44,500

Total Funds Available

$ 55,500

 

 

Uses of Funds

 

Item

Amount

Office Registration and Hosting

$1,000

Marketing Materials Design

$3,000

Email and SMS database purchase

$4,000

Online Payment Portal

$5,000

IT System

$4,000

Listing Charges on Business Directories

$5, 000

Initial Marketing Expenses

$1,500

Computer and Equipment

$22,000

Inventory

$10,000

Total Required Funds

$ 55,500

 

 

References

Barrow, C. (2012). Business Start Up For Dummies Three e-book Bundle. Hoboken: Wiley.

Clark, L. E. (2011). How to open & operate a financially successful bookkeeping business. Ocala, Fla: Atlantic Pub. Group.

Ferry, J. (2010). How to start a home-based senior care business. Guilford, Conn: Globe Pequot Press.

Fox, J. (1996). Starting and building your own accounting business. New York: John Wiley.

Fox, J. (2001). Building a profitable online accounting practice. New York: Wiley.

Holtje, H., & Shelly, S. (2010). How to start a home-based business. Guilford, Conn: GPP.

Khosrowpour, M. (2001). Pitfalls and triumphs of information technology management. Hershey, Pa, [u.a.: Idea Group Pub.

Morrow, B. (2008). How to open & operate a financially successful cleaning service. Ocala, Fla: Atlantic Pub. Group.

UNCTAD. (2005). Division on Investment, Technology and Enterprise Development. Investment policy review: Kenya. New York: UN.

United Nations. (2002). Manual on statistics of international trade in services. Geneva: United Nations Publications.

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