You Are an Entrepreneur!
ACC 557

Abstract Being a full time working mom with a house, husband and grad school to attend to, it does not give me a great deal of free time to pursue my lifetime goal of opening up my own day care center. Today, I have decided to turn that goal into a business finally with the support of my friends and family. However, I do need to obtain start-up capital from a lender or from an investor. My goal is to properly convince the lender or investor that opening up my own daycare center is more than just a dream and that I am very passionate about opening up this business and making it a very profitable one. I feel that I have a firm grasp of how to properly run a daycare center, the accounting practices that impact a daycare center as well as the controls needed to safeguard assets to ensure that we stay in compliance and adhere to all regulations set forth. My plan is to start this business inside my home with the name of “Babies & Beyond” located in Somerset, New Jersey, see how well I do, and then perhaps look to expand and build a complete center one day.

You are an Entrepreneur! 1. Describe the type of business you have created including: A daycare center is a place for parents to drop their children off with ease and comfort knowing that their money is going to good use to keep their children safe while also providing the children with a curriculum for learning. Daycare programs provide supplementary childcare on a regular basis inside and outside of a child's home and are administered by adults other than the child's parents (Thomas, 2014).
a. The product or service, and general staffing plan. The overall mission for Babies & Beyond daycare is to provide a safe, affordable and high quality place for children. Babies & Beyond daycare provides an at home program for children ages 6 months to five years. We provide a friendly home environment where children are very much encouraged to learn and grow at their own pace. Here at Babies & Beyond, we are committed to the children and families that we serve. Studies have produced new information about how daycare, home environment, and preschool contribute to a child's success in kindergarten and beyond (Thomas, 2014). At Babies & Beyond that is what our main focus is to ensure that all children that come through our daycare excel in Kindergarten and beyond. Yes, play time will be had, but learning is crucial. Initially staffing will include me, Heather Warrelmann as the main childcare provider at my home with an additional one to three qualified assistants. Depending on qualifications, one staff member will be pointed as my back-up for times where I may need time off. At Babies & Beyond we acknowledge that parents must attend their jobs and therefore, will follow the local public school closings schedules as well as provide summer care. Classroom observation and interviews with center directors and staff provided data on center characteristics and program quality, and on staff qualifications, commitment, and compensation (Whitebrook, 1989). All staff would also have to meet all state requirements and be CPR certified, which will be paid for by the business including maintaining the active status each year it is required to be renewed.
b. The form of your business and the benefits it offers your particular business. The form of this daycare business right now would be sole proprietorship. If I intend on expanding down the line, I may consider a partnership or even an LLP (Limited Liability Partnership), but for now keeping the daycare in house would keep me in alignment with the form of business known as sole proprietorship. As its name implies, this form is an option only for a business with one owner (Fleischman & Bryant, 2000). Sole proprietorship is often known to not have a significant tax planning opportunity. However, recent laws past are aiding in changing this misconception (Fleischman & Bryant, 2000). Meaning that sole proprietorship does not offer too much protection against some creditors, so if my business fails and I still owe money, the creditor can go after my personal assets. There aren’t any mandatory structures for this business form, and for tax purposes you basically would file a Schedule C to your income tax return and pay self-employment tax on your net earnings or deduct your losses whichever the case may be (Montijo, 2013). I would still choose to go this route initially because given all my options and liabilities, I think it would be better to know that if it fails it is because of me and not another partner or outside means. Too often I hear of people taking of business partnerships with people they think they can trust and the business ends up failing because the other person does not hold up their end of the deal. To me that is worth any risks that may be involved in setting up your own business from the ground on up. My goals can be achieved by honesty and integrity and all records will be recording and documented appropriately for review.
c. A chart of accounts specific to your business, including a rationale as to the selection of each account. According to Siegel & Shim (2000), a chart of accounts is a list of ledger account names and numbers arranged in the order in which they customarily appear in the financial statements. The chart of accounts is very useful and often times helps to locate certain accounts within the ledger more easily. Given the fact that these charts are typically lists of the accounts that the company uses, they are usually arranged in a numeric format, but I have seen instances where the company uses alphabetical or alphanumeric as well. For the purpose of my company, numbers will be used. For example, asset accounts may be assigned the numbers 1–100 and liabilities assigned 101–200. For bigger businesses, a wider array of numbers would be required for each grouping of accounts. Some businesses use a three digit numeric scheme for each account. In those types of cases, the first digit identifies the financial statement category and the remaining digits apply to the position of that account within that category (Siegel and Shim, 2000). Below is a chart of accounts for Babies & Beyond daycare:
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Assets are in a physical form that the business owns. Assets are typically what carry out the production and sales of a business which brings in revenues for the business. As shown in the chart above, Babies & Beyond daycare has assets such as day care supplies, the building, and a van to be able to cart the children around to do fun activities from time to time, furniture such as cribs or bedding for the children, etc. These assets all add value to my business but also depreciate over time which must be included as well. The liabilities shown above include existing forms of debts such as money owed and expenses speak for themselves in what I pay out in order to keep my business steadily afloat. My business depends on children in order to make an income. Without children to watch, the business will fail. My main goal is to provide my services for a discounted rate for a pre-determined amount of time and then raise the prices to start bringing in profits and revenues. 2. Based on the form of your business, analyze whether or not you will be required to use Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) accounting methods and how the IFRS / GAAP convergence will impact your business. Suggest how you will incorporate any changes into your books and records. The form of business that Babies & Beyond will initially operate on is sole proprietorship. In the United States, Generally Accepted Accounting Principles (GAAP) is still required but adoption of International Financial Reporting Standards (IFRS) has support of many accounting firms and professional organizations (Harris, Stahlin, Arnold and Kinkela, 2013). IFRS is characterized as more principles based and GAAP is more so characterized and more so considered rule based. However, given the small nature of my business, neither GAAP nor IFRS would apply to my business at this point in time. A number of elements are impacted when dealing with the convergence and subsequent changes of accounting and reporting standards. These elements tend to include management, investors, accountants and stock markets to name a few. The primary problems with convergence are the lack of requirements or guidance that currently exist between IFRS and generally accepted accounting principles (Fischer and Marsh, 2012). Although there is little to no impact with my business, Babies & Beyond, bigger businesses and/or international businesses will benefit from these simpler, streamlined standards since they pretty much apply to all countries and are followed worldwide. These changes will allow businesses the opportunity to raise capital by means of lower interest rates while lowering risk and the cost of doing business. 3. Prepare a pro forma balance sheet and income statement providing the assumptions made and support the valuations assigned. Pro forma reports omit items that statements prepared in conformance with generally accepted accounting principles (GAAP) must include (Levinsohn, 2002). Certain omissions may vary depending on the different businesses and majority of the time, disclosure tends to me limited. As Levinsohn (2002) argued, there really is no comparability with the pro forma practice and there is no straight forward methodology for businesses to follow. In my records below, I used Microsoft Word since this was a very basic balance sheet and income statement for Babies & Beyond daycare; however, Excel is another very handy tool as well especially when dealing with larger companies. The Pro Forma Financial Statements can be updated quickly and easily from year to year and from situation to situation if you use an Excel-based budget (Porter and Stephenson, 2010). Below is a brief explanation of what the pro forma balance sheet and income statement would look like for Babies & Beyond. Being that it is a very low income, sole proprietorship, these records are not as detailed as larger businesses.
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4. Considering the value of assets (assigned per your balance sheet) used within your business, recommend two (2) specific internal controls that you will implement to protect your company’s assets and resources, justifying how each will provide assurances to management. Internal control consists of surveying, analyzing and verifying permanently a certain activity or situation, in order to follow its course and take measures to master the potential risks, and measures for improvement (Lenghel, 2012). Considering the value of assets that will be used at Babies & Beyond, the following two internal controls are the ones that I would most likely implement in my business to protect my assets (both business and personal) along with any additional resources that pertain to my business. The first procedure that I would use for my business would be to utilize the checks and balances approach which will help detect as well as prevent any fraud that may occur. This is called documentation procedures. This will help to ensure that the assets in my business have been properly managed as well as ensure that any ethical and legal standards are followed and all guidelines are adequately met. This particular procedure would include certain aspects such as gathering information regarding all profits made, any payments collected since my business is not product based but rather service based along with any expenses that my business accrued such as upkeep on the van, gasoline for the van, new furniture or toys for the children, etc. Since my business will operate as a sole proprietorship, there is no actual Human Resources department. So at this time the Human Resource Controls would not be able to fully be utilized. However, I will handle all such responsibilities and therefore use the independent internal verification process and procedures. Although there really is not a way to surprise myself or my business, this does keep me honest in the sense that my records will periodically be checked. It is better to check assets and records periodically so that when it comes time for tax season or if the business gets audited by the state, all records are properly put together and everything is rightfully documented. It is also a good idea to compare the books to the records that the bank may have for savings and/or checking accounts to ensure that everything is aligned and totals up equally across the board. 5. Based on the internal control recommendations that you made, suggest how you will implement each within your business environment, indicating how challenges or resistances will be overcome. Implementing the internal control recommendations for my business will not be very difficult since it is a sole proprietorship. As in other larger companies, it takes many different employees and/or departments to implement some of these internal controls. I will do my due diligence to uphold the integrity of my business and follow the internal controls as outlined in my approach. Implementing and documenting procedures will be manual since my business would not have a cash register or any technical tracking methods. My business would document procedures via Microsoft Word and Excel for the initial time being. All documents will be numbered and therefore filed accordingly. Numbering the documents will help the business ensure that nothing gets missed or duplicating in the records. Accuracy is very important regardless of manual or technical record keeping. Doing the records manually will be challenging at first as I’m sure it is much easier when a computer or register does the harder work for you, but I’m confident that my business will be successful and in compliance. 6. Evaluate the impact of the regulatory environment, including the Sarbanes-Oxley Act and other regulatory requirements, on your business venture, giving considering to how you intend to comply with the requirements and the general impact to decision making within your business. There has been a great deal of scandals surrounding businesses and larger corporations that affected not only the corporations, but investors and thousands of innocent people. Congress was therefore under a great deal of pressure to produce a legislative response that would address the issues that made these scandals possible. They took this immediate pressure put upon them and subsequently reacted by looking to create new laws that would reform and render corporate accounting practices more transparent and hold executives accountable for the accuracy of their firms’ financial statements. The most prominent of these responses was the Sarbanes-Oxley Act in 2002 (Auerbach, 2014). Although Babies & Beyond is a rather small business and Sarbanes-Oxley Act may not be applicable for the current business model, it is still very important to follow these important regulations, rules and laws regarding and surrounding this act. Babies & Beyond will not be operating internationally or even out of the state of New Jersey, but there still are rules and regulations that need to be followed in accordance with New Jersey state policies and procedures. Proper decision making is crucial in the business as well. Under no circumstances will any individual be subjected to any form of discrimination, harassment or solicitation of any kind at Babies & Beyond.

Conclusion Babies & Beyond is a daycare owned and managed by myself. Babies & Beyond has a mission statement to provide a safe, affordable and high quality place for children. In doing so there are plans, rules and procedures to follow in order to stay in compliance with standard state and legal regulations. Because this business would initial be considered a sole proprietorship, there is not too much protection against some creditors, so if my business fails and I still owe money, the creditor can go after my personal assets. My business will operate just like any other business showing a chart of accounts, pointing out the assets, liabilities and equity at stake. Babies & Beyond daycare has assets such as day care supplies, the building, furniture such as cribs or bedding for the children, etc. These assets all add value to my business but also depreciate over time which must be included as well. All of these items will be accounted for on the balance sheet and income statement each year. This is a business that will comply with any and all policies set forth.

References
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