Gift Shop Red Flags

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Red Flag 1
Although the revenue on snack food decreases every year, the cost of goods sold increases every year. The cost of snacks sold every years decreases and the cost of goods increases because the vendors in which you are purchasing the snacks from prices are increasing while yours are staying the same. The price on the snacks that are sold needs to be raised – Or you could find another vendor to purchase them from cheaper. You should raise the price enough to cover the cost to buy them and if not too much also to make a profit. Red Flag 2

Some of the items in the gift shop appear dusty and “shopworn.” This may not have a direct effect on the sales of the gift shop but it does have an indirect effect. The gift shop should always remain in good condition like it is thriving no matter what is going on behind the scenes. Making sure that everything is clean and dusted on a regular basis would allow people to see what the gift shop has to offer and attract more customers – and more sales. Red Flag 3

In your examination of the financial statements, you see that there is a bank loan on the books. The average balance of the loan is $14,000 at the beginning of the prior year, and $10,000 at the end of the prior year. The interest expense on the income statement for the year is $1,560. This one is kind of tricky – you have to pay interest on loans there is really no way around it. You could either pay off the loan with the money that is in savings – this would save you a ton on interest – or you could try to find another bank with a lower interest rate for this. Because this is a non-profit organization paying interest on a loan is really unrealistic – If I were in control of the budget this would be paid off with the money that is in the checking account. Red Flag 4

The balance sheet shows that the checking account has over $20,000 in it, and the account does not pay interest. The gift shop does not have an interest bearing account. This is a problem...
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