Hair Emporium

Topics: Income statement, Financial statements, Balance sheet Pages: 5 (1661 words) Published: February 29, 2012
Case Study: Hair Emporium

The Hair Emporium is a salon owned and managed by Rolando and Rosa. After years of success, and much research, they have decided to expand their business through franchising. As the hair care industry earns approximately $16 million dollars annually in the US; Rolando and Rosa are sure they will be successful as they have a proven hair care system that works for women, men, and children (Judd/Justis, 2010). Franchisees interested in opening their own Hair Emporium would need between $65,000 and $136,000 to open their own location with one fourth to half of the total investment needed in cash (Judd/Justis, 2010). The remaining funds will need to be secured via an outside source such as; banks and third-party lending institutions. In deciding to franchise their business Rolando and Rosa realized that in order to have a centralized way of doing business, that can be passed on to their subsequent franchisees, they must come up with various steps, standards, and methods for the daily operational tasks such as; accounting. As the Hair Emporium has had difficulty in processing various accounting needs such as; paying taxes, Rolando and Rosa are concerned about how to train any franchisee on their way of handling accounting procedures. 1. Identify what type of accounting records and financial statements should be offered to the franchisees. As the owner of a franchised business it is the responsibility of the franchisor to have business operations nailed down and ironed out. The franchisor should have various manuals for the franchisee to use as guidelines and reference material in making decisions regarding the business. In the case of the Hair Emporium, the recordkeeping manual would be the manual of concern for Rolando and Rosa. Understanding the various types of financial statements available to a business and selecting the statements that best suite the business is important. Financial statements assist the franchisor and franchisee in analyzing the financial condition of the business in order to make important financial decisions. The business may need more capital or need to invest to balance out the cash flow and the financial statements are the reports used in making these decisions. In the case of the Hair Emporium Rolando and Rosa should use an income statement. This financial statement is used for recordkeeping of revenues verses expenses for a business over a given period of time (Judd/Justis, 2010). This statement shows the profits and/or losses of the business. Another financial statement that would assist with the financial decisions of the Hair Emporium is cash flow statement. This statement allows the franchisor and franchisee to be aware of the businesses financial standings regarding their obligations to debt. This statement shows if the business is in need of investment or needs to invest because of excessive cash flow.  2. Should balance sheets and operating statements be offered monthly or yearly? Give the pros and cons of doing each. In considering whether the balance sheet and operating statements of a business should be offered on a monthly or yearly basis one should first consider its use. The operating statement (income) is used as a way of recordkeeping for the business transactions. This financial statement outlines the business’ revenue verses its expenses. From the income statement the organization’s annual statement is derived which is used for tax reporting. The income statement provides information concerning return on investment, risk, financial flexibility, and operating capabilities. For a new business being able to see profit and loss on a monthly basis is important. This allows the management team to be proactive in their decision making. As the success of any business is measured from its profit, the income statement would give the franchisor and franchisee the knowledge of how successful the business is. The major advantage...
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