Accounts+&+Finance

1. Evaluate the other possible sources of finance that Neil and Laura could have used to start //Reach out.//

2. Analyse //Reach Out’s// cash flow position.

3. Explain the importance of //Reach Out// preparing a budget (HL)

4. Identify the items shown on the Statement if Financial Activities (SOFA)

· Commission varies each month depending on the changing demand for therapy sessions. · Commission has been increasing so far, and this increase has become the main contributor to Reach Out’s revenue (Appendix 1). || · Reach Out usually receives a monthly average of $200, which means Laura has a strong support base. || · Because the money was a donation, it does not have to be repaid. || · Laura’s: fixed at $2000 per month à no matter how well or how badly the business performs in a given month, Laura will receive $2000. · Andrew: $1000 per month à like Laura, no matter how well or badly the business performs in a given month, Andrew will receive $1000. || · In the case of Reach Out, overheads are likely to be utility bills, insurance etc. · However, since Laura is working from home, her rent costs may or may not be considered an indirect cost of the business. || · Because this plan would require the use of Reach Out’s surplus, both the sale and production of the PECS cards appears to have been put on hold. || · Neil’s donation used to fund start up. ||
 * **__Component of SOFA__** ||  **__Explanation__**  ||
 * Commission from therapist scheme || · $5 from the $25 paid to each student therapist by families for one-to-one therapy sessions (lines 70-71).
 * Sales of subsidized PECS cards || · “Subsidized” because rather than charging customers (the full cost) for the product, Reach Out puts money from their surplus towards the PECS cards, enabling them to sell them to customers at a reduced price (lines 55-57). ||
 * Charity contributions (donations) || · Made by readers of Laura’s blog, and donated to Reach Out.
 * Start-up funding (Neil’s donation) || · Neil contributed $10,000 to fund the business start-up.
 * Salaries || · Neil’s: performance related pay à Neil receives 10% of the total cash receipts. This means that the better the business performs, the higher Neil’s salary.
 * Direct costs || · Business costs that are directly related to business production. In this case, the direct costs are likely to be the wages of the student therapists, as Reach Out is currently not producing PECS cards, or any other tangible “products”. ||
 * Indirect costs || · Indirect costs are those can cannot be tied directly to the output of the business.
 * Production of subsidized PECS cards || · There have been no sales, but also no production of PECS cards. An explanation for this could be Neil’s plan to develop a new portfolio of products including clothes and accessories (line 127).
 * Start-up costs || · $10,000 to cover converting Laura’s home into an office, and to equip it with better computer facilities (lines 33-34).

5. Explain the purpose of the Statement if Financial Activities (SOFA) and their importance to various stakeholder groups.