Steps To Start A Sole Trader Decorating Business And Importance Of Accounting In Business Essay.

Writing down the business model

Before starting a business as a sole trader, David Green needs to understand the main characteristics of the sole proprietorship form of business. In this type of business, the owner of the business is expected to contribute the total capital and assumes all the risks associated with the business. There are series of steps that should be followed before starting a sole trader business as decorator. The steps that should be followed for starting a business is explained in detail below:

The first and the foremost step in setting up a business model is to nail down the business model, whether a contract shop or retail business. Both the type of business model operates differently. Before deciding the business model, it is advisable to conduct research by knowing the perspectives on pros and cons of models. The owner could obtain relevant information from industry mentors or business coach.

The next step is to create a business plan for the business. Most of the small business does not create the business plan due to the fact that it requires planning and forethought. The business plan should contain information about the products or services offered, target customer, competitor’s information, marketing strategy, operational plan, sources of finance and financial viability of the business.

In this step, the sole trader should focus on listing the equipment needs for providing decorating services. In order to have greater insights, the owner should attend an industry trade shows. While asking the vendor questions, the owner should inquire about the ongoing support, training requirement and financing options available. Do not forget that the business will require laptops and computers for loading graphics artwork software and growth plan.  

Reach out to the recommended suppliers and request for price sheets, catalogues and samples. Open account with the supplier whose product matches with the preference of target audience. During the initial days, the business should focus on regional suppliers.

Decorating is a form of business that requires branding. Therefore, the owner must develop a logo on its own or hire a logo designer (Adams and Burd 2019). In addition, business cards, stationery, brochures, invoices must be ordered ensuring that they contains the company’s logo. Printing logo on hats, jackets and hoodies would help in creating image of the brand in the minds of the customers.

Nowadays, most of the people spent their leisure time on social media platforms such as Facebook, Instagram, YouTube and Twitter. The use of these social media platforms would help in increasing the visibility of the business. The business can create a separate page on Facebook and Instagram, which can be used to post pictures, videos and resolve the queries of customers.

An official website of the business will be required even if the business does not offer e-commerce business. Here, the owner’s could present why it is the best shop in the location and show examples of decorated items on the website.

This can be done by sponsoring any sports event or charity run so that the people will come to know about the business. In addition, the sole trader should not be shy in asking other businesses for referrals.

Creating a Business Plan

2) Accounting is the process of recording financial transactions of the business. The accounting statements provide vital information to the stakeholders, which help them in making various financial decision. To understand this, let us consider Tesco Plc listed on London Stock Exchange. The decision makers through the information provided by the accounting statements include management, investors, employees and suppliers. The management utilizes information about the profitability of the business and operational efficiency for making important decision about the business. The investors view the statement of profit and loss for profit and the dividend information about the company. It helps the investors of Tesco Plc for making investment decisions. The information provided on the consolidated balance sheet and income statement is used by the suppliers to calculate various ratio such as accounts payable days to understand the time taken by the company to pay to the suppliers. These informations is used by the suppliers to make decision regarding credit terms and other related matters.

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2) The past performance of the company indicates that the profitability of the company was increasing at an average of 13.30% prior to the covid-19. The business profitability has been largely impacted due to the coronavirus pandemic all over the world as the company has suffered a loss of $65,400 during the year 2020, after 15.64% increase in profit during 2019. With the reduction in the covid-19 restrictions and the company’s past performance, it is expected that the company profitability will improve by 40% in the year 2022. However, the company would suffer a loss of $29,868 during 2022. Overall, the company has a very good past performance, which is considered in forecasting the performance in 2022.   

Bank

1. Income Statement for period ended 31 October 2021

1. Statement of Financial Position as of 31 October 2021

1. Net profit Margin = net profit/sales = (210)/5600 = - 3.75%
2. Gross profit margin = gross profit/sales = 770/5600 = 13.75%
3. Current ratio= current assets/current liability= 15,840/5,150= 3.08
4. Acid test ratio = (cash+ accounts receivable) / current liability = (7,340+8030+150)/5,150 = 3.02
5. Accounts receivable collection period = Receivables / Average daily credit sales = 150/ (5600/360 days) = 9.64 days or 10 days
6. Accounts payable payment period = Accounts Payable / Average daily purchases = (5,150/ (5,150/360 days) = 360 days

In order to compare two businesses or two phase of the same firm on a variety of fronts, ratio analysis is an effective strategy/study. This comprises factors like as profitability, liquidity, and so on. As we all know, COVID-19 has had a negative impact on the performance of every organisation. When comparing the net profit margins of competitors in 2019, 2020, the net profit margins of competitors in 2021 were greater. It follows that Covid-19 has had a negative impact on the performance of every company. Because of increased restrictions and lockdown in trade as a result of Covid-19, the majority of businesses have seen a decline in sales. However, when we looked at Anna's business for the month of October 2021, we found that the Profit Margin was lower than the competitors' margin, indicating that Anne's performance has not been on pace with the industry or with her competitors. The current ratio of Anne's company outperforms that of her competitors, according to her. It signifies that Anne's company has better liquidity than the competition. When comparing Covid -19 to previous years, liquid ratios have not been reached. Inventory may be accumulating in warehouses since most businesses are not moving inventory owing to lower sales as a result of the Covid-19 epidemic. The accounts receivable will be high since the majority of the business has not paid on time, while the liquidation ratio will be high because the majority of the business has not paid on time. The Anna’s business was excellent at controlling liquidity of the company by looking at ratios, even when the company's profitability was weak. Anna was able to recover cash from customers fast, even when the company's profitability was poor. So Anna's accounts receivable days are 10 days, when the industry average is 26 days. As a result, she is paying suppliers far later than the industry standard. It will take 360 days to pay off its debts to creditors. It's possible that this is due to Anna's upcoming special negotiations with suppliers to obtain greater flexibility in terms of credit period. The higher it is, the better it is for the corporation because it gives it more time to locate resources to meet its financial responsibilities (Ratio Analysis, 2020).

Despite the fact that the Covid-19 pandemic had a negative impact on the majority of businesses, particularly Anna's business, there was a good outcome in terms of liquidity for Anna's business.

References

Adams, P. and Burd, P., 2019. Classic soccer shoes: From an informal to a formal business start-up. The International Journal of Entrepreneurship and Innovation, 20(3), pp.220-226.

Financial Statement Analysis, 2020. Ratio Analysis.