For this project, you are expected to submit a completed form of the “Analyze a Business Scenario” worksheet. The worksheet can be found with the scenario attached at the end of this student guide.

Question

Step 1: Read each section of the scenario on your own.
a) If you have questions about how to complete this assignment, ask your teacher for assistance.
b) If you need help understanding any of the terms or equations used in the scenarios and questions, ask your teacher for assistance.

Step 2: Participate in a group discussion to answer the questions in each section.
a) Meet with your assigned group to discuss the questions for each scenario.
b) Remember to take notes and follow the rules for group discussions.
c) Use your notes from the discussion to answer the questions.

Step 3: Use this checklist to evaluate your project.
If you can check each box below, you are ready to submit your project.
 Did you read each scenario carefully?
 Did you participate in the group discussion?
 Did you take notes during the discussion?
 Did you support your ideas with facts and details from the scenarios?
 Did you use your notes from the discussion to answer the questions?
 Is your worksheet free of errors in spelling and grammar?

Step 4: Revise and submit your project.
a) If you were unable to check off all of the requirements on the checklist, go back and make sure that your project is complete. Save your project before submitting it.
b) Turn in the worksheet to your teacher. Be sure that your name is on the submission.
c) Submit the worksheet through the Virtual Classroom.
d) Congratulations! You have completed your project.

See below for Scenario and Worksheet.
 
ANALYZE A BUSINESS SCENARIO

Read the following scenarios related to running a business, then work with your group to respond to the questions. As you share ideas, remember to follow the rules for group discussions:
• Take notes.
• Be courteous.
• Listen carefully to one another.
• Speak one at a time without interrupting.
• Support your statements with facts and details.
Finally, use the discussion and your notes to answer the questions.

Section 1: Analyzing a Balance Sheet
Omar and Janet own a small jewelry-supply business called Rings and Things. From January through April, the company generated a fair amount of business. However, Janet and Omar’s owner equity is lower than they had expected, and they seem to be losing money every month, even though sales are steady. Below is April’s balance sheet for Rings and Things.
Assets
Cash (bills and coins) $35
Bank checking account $1,997
Materials (beads and wires) $40
Finished jewelry $100
Office supplies $50
Furniture $100
Total $2,322

Liabilities
Balance on loans $925
Payroll $1,000
(1 salesperson who works 20 hours/month)
Total $1,925


Assets – Liabilities = Owner Equity
$2,322 total assets
– $1,925 total liabilities
= $407 owner equity

1. Based on the balance sheet for April, offer two ways in which Janet and Omar can increase their owner equity.

2. Review the liabilities section of the balance sheet for Rings and Things. What problem can you identify with the payroll information, particularly as it relates to how much the one employee gets paid? What solution would you offer Janet and Omar?

Section 2: Analyzing Cash Flow
After reviewing their balance sheet, Omar and Janet create a profit-loss statement to see how much money they are spending versus how much money their business is bringing in.
Below is April’s cash-flow statement for Rings and Things.
Operating Activities
Cash in
Online sales $600
In-store sales $1,000
Total operating cash in $1,600

Cash out
Supplies ($300)
Labor ($1,000)
Rent ($350)
Utilities ($100)

Net operating activities –$150

1. Based on the profit-loss statement, does Rings and Things have a positive or negative cash flow? Why?

2. Based on the profit-loss statement, name two ways Janet and Omar can improve their cash flow.

3. Omar and Janet decide to revise their budget for Rings and Things. What suggestions about labor costs would you make, if the goal is to improve the business’s cash flow?

4. Omar and Janet are also trying to forecast what their federal and state income taxes will be at the end of the year. If Rings and Things had a negative cash flow of –$150.00 per month from January through April, but a positive cash flow of $1,000.00 per month (after expenses) from May through December, on what dollar amount will they determine their income taxes? What expenses could be used for tax deductions?

Answer 1

ANALYZE A BUSINESS SCENARIO

Section 1: Analyzing a Balance Sheet

1. Two Ways to Increase Owner Equity:

   • Increase Sales: Omar and Janet could focus on enhancing their marketing strategies to attract more customers, both online and in-stores. This could involve using social media to promote their products or offering discounts and promotions to entice buyers.
   • Reduce Costs: They could evaluate their current expenditures to find areas where they can cut back, such as negotiating lower rates on supplies or exploring cheaper alternatives for materials.

2. Identifying Payroll Problems:

   • The payroll shows a liability of $1,000 for one salesperson working only 20 hours per month, which translates to $50 per hour. This rate seems unusually high given the reported cash flow of the business.
   • Suggested Solution: Janet and Omar might consider hiring a part-time employee who is paid hourly at a more typical rate or potentially reducing their reliance on an employee by cross-training themselves or using freelance help during peak times to save costs.

---

Section 2: Analyzing Cash Flow

1. Net Cash Flow Assessment:

   • Rings and Things currently has a negative cash flow of -$150, indicating that expenses (cash out) exceed income (cash in). This is a warning sign that the business needs to either boost sales or cut costs to stay financially solvent.

2. Two Ways to Improve Cash Flow:

   • Reduce Operational Expenses: They can look into reducing fixed costs such as rent by finding a more affordable location or renegotiating current lease agreements.
   • Increase Revenue Streams: They might consider expanding their product line, introducing new items, or adding services such as jewelry-making classes to attract additional customers and sales.

3. Suggestions About Labor Costs:

   • Omar and Janet could consider scaling back the hours of their current employee or transitioning to a commission-based pay structure that aligns with sales, incentivizing more productivity while potentially lowering fixed labor costs.

4. Tax Forecasting:

   • The total cash flow for the year considering the negative cash flow of -$150 for the first four months (January through April: $150 x 4 = -$600) and a positive cash flow of $1,000 for the last eight months (May through December: $1,000 x 8 = $8,000) will result in a total flow of $8,000 - $600 = $7,400.
   • Income Tax Determination: They would calculate their income taxes based on the net income of $7,400 after considering deductive expenses from the cash flow statement, such as supplies, labor, rent, and utilities, since these are necessary costs associated with running the business.

---

Conclusion: This analysis indicates that while Rings and Things is currently facing challenges with equity and cash flow, there are viable strategies Janet and Omar can adopt to improve their situation. By focusing on increasing income and reducing costs, they can work towards a more positive financial outlook.