Name of business
The business will be called Romma Beauty salon and Cosmetics.
Ownership of business
The business will be formed as a California corporation with four stockholders: Joel Smith, Rees Joseph, Juliet Lawrence, and Carol Wood. Each stockholder will own 25% of the issued stocks and equal to their individual paid-in-capital. The agreement and charter will be in accordance with the laws of California State and will be drawn up by Dennis Murphy, an attorney in the State.
Information on the business
Type of business: Products and services
The purpose of the business is to offer a wide range of salon services such as hair: coloring, relaxers, conditioning, curling, braiding, hair cuts and weaving. Nails: polish, pedicures and manicures. Beauty care: body waxing, massage and facials to the residents within the location. The business will also offer cosmetics.
Benefits of the business
As everyone wants to look good, this business will ensure that customers have attained this at a reasonable price. Romma Beauty Salon and Cosmetics will excel at good customer service and create a pleasant environment for customers. The business will generate funds that will help in its development and expansion. The funds will also serve as part of the income of the four stockholders and additional staff for their upkeep. The income earned will also enable the stockholders to afford further studies, as with the society developing at a rapid speed, further skills and knowledge are required. Romma Beauty Salon and Cosmetics will set itself apart from other salons that offer one or two types of services. It will attract customers that become frustrated that they cannot do their hair and beauty in one location. To increase the comfort of customers, refreshments will be served.
To provide quality beauty services and products to the ever growing population of California. Romma Beauty Salon and Cosmetics focuses on providing services and products with emphasis on convenient hours and maximum customer satisfaction. The business is also focused on offering products and services that enhance the customer’s physical appearance as well as mental relaxation in addition to creating a pleasant environment for them.
History of the business
As Romma Beauty Salon is a start-up business, there is no history as such. All the stockholders have experience in offering beauty services. In addition, all the stockholders are familiar with financial knowledge, which is a requirement in determining the accounting practices that will impact on the business. Having studied accounting, the stockholders are aware of the controls needed to safeguard the company’s assets and the accounting system that will produce accurate and relevant financial information. However, additional staff will be required to work during the time that stockholders will not be available.
Revenues and Accounting
The revenues of the business will be generated by providing quality and reliable beauty services and products to residents of California. Full accounting records will be maintained by Romma Beauty Salon and Cosmetics. Rees Joseph, who is the company’s accountant, will be responsible for the preparation of business financial statements and filing of tax returns. An external auditor will perform internal audit duties for the company to ensure that proper books of record are maintained and reflect a true and fair position of the corporation. Accounts to be prepared will be in accordance to the International Financial Reporting Standards (IFRS) and the General Accepted Accounting Principles (GAAP) to ensure that the business keeps the required statements for financial and legal purposes (Warren, 2012). The accounting software that the business will employ will be QuickBooks and the use of Microsoft Excel will be emphasized. Changes will be incorporated in the books of accounts by use of the ledgers (double-entry system).
As the need for beauty by people in California grows, so will the operations of Romma Beauty Salon and Cosmetics. All the stockholders have a total of 20,000 dollars to invest in the business. However, the business requires additional financing for business loan with a total of about 200,000 dollars. These funds will be used to purchase equipment needed for business operation.
Projected Business Start-up costs
The business start-up costs will be financed by capital from the stockholders. However, additional funds will be required for capital. This will be financed by a 5-year loan from a lender/investor at an interest rate of 10% per annum and borrowing from friends.
California is dramatically expanding in all aspects of life be it economical or social. Romma Beauty Parlor and Cosmetics targets mostly women living within the locality, as they are the main people that seek for beauty services. Potential exists for services to women who work at the nearby location of the business.
Romma Beauty Salon and Cosmetics will be promoted in various local media. Potential clients have already begun by word of mouth. As far as the business is concerned, response has been favorable. Formal advertising is planned to begin four months before the business is scheduled to open. Another form of advertising that is informal, but expected to yield positive results will be done by the customers themselves. That is when a customer lives the place looking elegant, definitely other people will be attracted and come. The customers are the best marketing tool.
All the stockholders will be responsible for the overall operation of Romma Beauty Salon and Cosmetics. Joel Smith will be responsible for the accounting/recordkeeping and administration of the business. The selection and retention of employees will be shared among the business owners. The expenditure of funds will also be jointly shared. Additional staff will be responsible for the assigned roles in the business.
Month 1 Month 2 Month3
Owners 4 4 4
Stylist #1 1 1 1
Stylist #2 1 1 1
Receptionist 1 1 1
External auditor 1 1 1
Total People 8 8 8
Total Payroll $80,000 $80,000 $80,000
Chart of Accounts
|Equipment Account||This will be financed by a five year loan from an investor. Equipment will include machines for performing beauty services and electronic machines to be used in the business.|
|Furnishings Account||This account will be maintained for the materials such as furniture which are meant to furnish the place of business operation. The account will be financed by a loan from a lender.|
|Products Account||These will include beauty products that will be sold by the business cosmetic department. This will be financed by the owners as well as the loan.|
|Cash Account||The cash account will be maintained for all cash transactions of the business. All the cash from the business as well as the investor will be debited in this account|
|Sales Account||Sales account will be useful for recording all the sale transactions including sale services and products.|
|Expenses Account||This account will record all the expenses of the business including payroll, depreciation, rent and electricity, insurance, marketing, interest and tax expenses. The expenses will be paid for using the revenues that the business generates from its operations.|
|Revenue Account||The account will include profits generated from sale of cosmetics as well as the sale of salon services.|
|Liabilities and Equity Account||This will include resources borrowed from investors/lenders and will be paid from the revenues earned by the business.|
Pro Forma Income Statement
Month 1 Month 2 Month 3
($) ($) ($)
Sales 200,000 240,000 300,000
Direct cost of sales 20,000 22,000 30,000
Other costs of sales 0 0 0
Total cost of sales 20,000 22,000 30,000
Gross Margin 180,000 218,000 270,000
Gross margin% 90% 90.8% 90%
Payroll 100,000 100,000 100,000
Marketing and promotion 1,000 1,000 2,000
Depreciation 2,000 3,000 4,000
Rent and Electricity 5,000 5,000 5,000
Insurance 100 100 100
Payroll taxes (15%) 15,000 15,000 15,000
Miscellaneous 70 80 90
Total operating Expenses 123,170 124,180 128,190
Profit before interest and taxes 76,830 115,820 171,820
Interest Expense 12,000 14,000 18,000
Taxes incurred 0 12,000 16, 000
Net Profit 64,830 89,820 137,820
NP % of sales 32.42% 37.43% 45.94%
Pro Forma Balance Sheet
Month 1 Month 2 Month 3
Assets (starting balances) ($) ($) ($)
Cash 20,000 22,000 24,000
Other current Assets 0 0 0
Total Current Assets 20,000 22,000 24,000
Furniture 39,000 44,000 60,000
Equipment 60,000 75,000 80,000
Cosmetic products 25,000 31,000 36,000
Accumulated Depreciation 2,000 3,000 4,000
Total Long-term Assets 80,000 121,000 133,000
Total Assets (100,000) (143,000) (196,000)
Liabilities and Capital
Accounts Payables 17,000 19,000 21,000
Current borrowing 10,000 12,000 14,000
Other Current Liabilities 0 0 0
Sub total Current Liabilities
Long-term Liabilities 164,830 209,820 277,820
Total Liabilities 127,000 151,000 175,000
Paid-in Capital 20,000 22,000 24,000
Retained Earnings (3,000) (4,000) (5,000)
Earnings (64,830) (89,820) (137,820)
Total capital 7,000 18,000 21,000
Total Liabilities and Capital 124,000 169,000 196,000
Internal controls to safeguard the Business Assets
Internal controls are very important in business, as they ensure that assets of the company are protected against damage or theft (Warren et al. 2012). One of the most important forms that will be used in the business is the physical, mechanical and electronic controls especially when it comes to handling of equipment of the business. Use of electronic controls ensures accuracy and efficiency in business operations and therefore, a very effective control. Mechanical devices include alarms and clocks to keep a record of time that an employee has worked. The other form of internal control that will be used in the business is the preventive and detective controls to ensure quality and prevent loss. Segregation of duties is also important when it comes to safeguarding assets and resources. It ensures that there is no duplication of effort as each employee is engaged in his or her tasks (Gilbertson & Lehman, 2011).
Physical, mechanical, and electronic controls
There will be safes and safety deposit boxes which will be used for business papers and cash. The access to these assets will be limited to one individual who will have the required password. In addition, the business will implement storage cabinets that will be used for records and inventory. The introduction of computers with fingerprint or eyeball scans will be used to record all the relevant data that relates to the business operations. Alarms will be available to prevent break-ins and time clocks for recording time worked. The business will also ensure implementation of television monitors and sensors to prevent theft.
Preventive and detective controls
The business will ensure maximum segregation of duties to prevent any frauds or losses in the company. There will be proper authorization and physical control over the company’s assets and resources. These forms internal controls will ensure that the assets and resources of the business are safeguarded to improve operation of the business.
Any challenges and resistance related to internal controls will require maximum attention. In order to ensure that this does not cause a problem to the business operations, there will be strict rules and regulations that each one involved in the business will be expected to adhere to. Failure to this will lead to the employee(s) being fired if ever he or she breaks the rules governing the business operations.
All the stockholders will be required to obtain operating licenses from the legal departments. The business will operate in accordance to rules and regulations governing the operations of business. This will ensure that the business venture does not incur extra legal costs for not following the required rules and procedures. The business will be carried out in accordance to the Sarbanes-Oxley Act. This act is intended to protect investors by improving reliability and accuracy of corporate disclosures made to security laws and other purposes. This will ensure that the business does not engage in any wrong doing as there are penalties involved (Bumgardner, 2003).
Warren, C. S. (2012). Survey of accounting. Australia: South-Western Cengage Learning.
Gilbertson, C. B., & Lehman, M. W. (2011). Century 21 accounting: General journal, 2012 copyright update. Mason, Ohio: South-Western.
Warren, C. S., Reeve, J. M., & Duchac, J. (2012). Corporate financial accounting. Mason, OH: South-Western Cengage Learning.
Bumgardner, L. (2003). Reforming Corporate America. Graziado Business Review, 6(1), 117.
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