Description £

Revenue
Sales of 75 Floral Bouquets @ £750
56,250
each
Cost of Sales:
Purchase of 123 Bouquets @ £275
33,825
each
Less: Closing Inventory (48 Bouquets
-13,200
@ £275 each)
Total Cost of Sales 20,625
Gross Profit 35,625
Expenses:
Store Rental 15,750
Mobile Phone Contract Rental 300
Electricity 1,800
Store Insurance 2,400
Sales Entertaining 375
Marketing 9,000
Business Rates 450
Water Refills 375
Total Expenses 30,450
Profit Before Tax 5,175
Tax to be Paid 1,500
Net Profit for First 3 Months 3,675

Flowers of Spring – Revised Balance Sheet (as of 31st August 2024)

LIABILITIES &
ASSETS £ £
EQUITY
Non-Current Assets Equity
Store Fittings 14,000 Initial Capital 35,000
Retained
Computer 2,844 3,675
Earnings
Total Non-Current Assets 16,844 Total Equity 38,675

Current
Current Assets
Liabilities
Bank Account 4,563 Trade Payables 3,632
Accounts Receivable 2,500 Tax Payable 1,500
Total Current
Closing Inventory 13,200 5,132
Liabilities
Total Current Assets 20,263
 Total Liabilities
43,807
& Equity
TOTAL ASSETS 37,107 43,807

Note: Adjustments have been made for the purchase of chairs and computer, tax payable, water refills,
business rates, and corrections in accounts receivable and trade payables.

2. Business Performance Analysis

Based on the revised financial statements, Flowers of Spring has achieved a net profit of £3,675 in its
initial three months of operation. This indicates a positive beginning, although with narrow margins..

Key Highlights:

Revenue and Gross Profit: The business generated £56,250 in revenue from the sale of 75 bouquets,
resulting in a gross profit of £35,625. This reflects a healthy markup on each bouquet, but the gross
margin should be monitored to ensure long-term viability.

Expenses: The primary expense categories are Store Rental (£15,750) and Marketing (£9,000). The high
fixed costs associated with store rental could pressure profitability, particularly if sales fluctuate. While
marketing expenses are essential for growth, their return on investment should be carefully assessed.

Net Profit: After accounting for total expenses of £30,450 and a tax of £1,500, the business retains a
modest net profit of £3,675. Although this is a positive outcome, the narrow margin emphasizes the
importance of efficient cost management.

Assets and Liabilities: The balance sheet reflects Total Assets of £37,107, Total Liabilities of £5,132, and
Equity of £38,675. The low level of liabilities suggests prudent financial management, but the significant
investments in Store Fittings (£14,000) and Computer (£2,844) represent considerable capital
expenditures that could affect cash flow.

Accounts Receivable and Trade Payables: Adjusting Accounts Receivable to £2,500 and Trade Payables
to £3,632 enhances the accuracy of financial reporting. Effective management of receivables can
improve cash flow, while lower payables reduce short-term financial commitments.

Assessment:

The business demonstrates potential with positive net profits and controlled liabilities. However, reliance
on high fixed costs and the need to increase sales volumes are concerning factors. Inventory levels
appear manageable, but the business must ensure that sales align with inventory to prevent excess
stock. Moving forward, improving marketing effectiveness and exploring cost-saving strategies will be
crucial for sustainable growth.

3. Recommendations

To improve business performance, Frank ought to:

1. Increase Sales: Frank can expand his product offerings, such as event decorations or additional floral
varieties, and collaborate with wedding planners to attract more customers and boost sales.
2. Improve Cash Flow: Negotiating better payment terms with suppliers and speeding up the collection
of receivables will enhance cash flow, helping to reduce the need for external financing

3. Enhance Marketing: Focusing on digital marketing, such as social media ads and promotions, can
increase customer engagement and sales while keeping costs manageable.

4. Cost Management: Frank should negotiate better deals with suppliers, reduce unnecessary expenses,
and explore cost-saving opportunities to improve profitability.

References

Accounting Review

Journal of Accounting and Economics

Bryman, A., Bell, A., & Harley, B. (2018). Business Research Methods (5th ed.). Oxford University Press:
Oxford, UK.

Contemporary Accounting Research

Review of Accounting Studies