Funeral Service Business Accounting Report: Financial Analysis

This report provides a detailed financial analysis of a funeral service business. It covers essential aspects such as financial systems, cash management, and cost analysis. The report includes an income statement for the year 2017 and projections for the following two years, detailing revenues from funeral services, burial, and cremation, along with expenses such as salaries, depreciation, and taxes. It also includes a breakdown of startup costs, including location, licenses, equipment, and marketing expenses. Furthermore, the report analyzes fixed and variable expenses, return on investments, and the implications of GST and income tax. The report provides a comprehensive financial overview of the business, including risk assessment and mitigation strategies, and financial assumptions based on market analysis and survey data. The analysis also includes a capital cost analysis, revenue forecasts, and depreciation schedules, providing a complete view of the business's financial performance and future projections.

FUNERAL SERVICE BUSINESS
ACCOUNTING REPORT

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
Funeral Services...............................................................................................................................1
Financial Systems........................................................................................................................1
Cash Management.......................................................................................................................1
Cost analysis................................................................................................................................5
Capital raising and start up cost...................................................................................................9
Financial Viability.......................................................................................................................9
REFERENCES..............................................................................................................................11
APPENDICES...............................................................................................................................12
Start-up capital costs..................................................................................................................12
Projected balance sheet of year 1...............................................................................................12
Payback period...........................................................................................................................13
3 year’s projections on Income statement.................................................................................14
Fixed & Variable Expenses.......................................................................................................15

Funeral Services
Financial Systems
Presumptions have been made regarding the financial conjecture after analysing the
market. figures and expenses have been made after considering all the operations that business is
required to perform in the business.
Accounts section cover all the business transaction related to the funeral service to
undertake for the 3 years. There are number of transactions that are required to be done for
earning the revenues for business. Funeral services are mainly the business related to the
activities and services provided at time of death. It is mainly concerned with the services after
the death of the person.
Cash Management.
Bank Account
Bank account is an essential for starting a business. Bank account will be opened in the
name of Company and initial investments of the capital funds will be deposited in the bank
account of company. All the transaction related to the business will be carried out from the
company bank account for keeping proper record of all the transactions. No minimum monthly
balance requirement.
 Unlimited free electronic transactions
 40 free non-electronic transactions per month
 Direct crediting of regular income
 Overdraft facility for approved customers
Cash handling & banking procedures
Business will make minimum use of the cash transaction in the business. most of the
transaction will be carried out using payments through electronic mode. Cash will be handled by
the accounts manager.
Internal Control
Internal control in every business to reduce frauds or errors. Effective internal control
will help the company in reaching its targeted objectives. Internal controls will involve
implementing procedures for inspections of every transaction. All the costs expenses should be
approved by proper authority of the superiors so that errors or frauds are identified.
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Risks assessment & Mitigation.
Risks Likelihood Mitigation
Financial Risks Financial risks involve the
errors and misstatement in the
accounting records or
transaction of the business
enterprise.
Risks associated with the financial
factors could be mitigated by
timely auditing of financial
records.
Market Risks They refer to the risks
associated with the external
factors of the market affecting
the cost and prices.
Managers will be properly
informed about the market
condition having influence over the
business.
Economic risk It is concerned with the
availability of resources for
running the operations
smoothly.
Economic risks could be mitigated
using the resources in the most
efficient manner.
Operational Risk It is related with the different
operations to be performed in
the business. Risk could affect
the objectives of business.
These risks are mitigated by
establishing effective coordination
and communication procedures in
company
Income Statement of Funeral services
Product/Service Cost (projected Income Statement)
Income Statement for the year ended 2017 Year 2017 Year 2017
Revenues from funeral services 728910
Burial revenues 450000
Cremation revenues 200000
Net Revenues 1378910
Fees and commission income 2300
Investment income 15000
Net realized gains and losses -
Fair value gains and losses -
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Total Revenue 1396210
Funeral director's fees 606407
Total fees 606407
Other Expenses:
Accountants Fee 25000
Salaries 150000
Superannuation 14250
Headstone costs 250000
Advertising 30000
Depreciation - Office equipment 1800
Depreciation - Motor vehicle 8000
Depreciation - Computers (10) and Multifunction
Printer (5)
5000
General expense 500
Legal expense 1000
Maintenance expense 1500
Utility Expenses 1600
Rent Expense 8000
Fuel Expense 4000
Total Other expenses 500650
Earnings Before Tax 289153
Less: Tax @ 30% 86745.9
Earnings After Tax 202407.1
Income statement is prepared after preparing the annual operation of the company as per
the average pricing standards of Australia. Average revenues that may be generated through the
funeral services has been considered the statement. It cover all the accounting transaction that
are required to be performed related to the business every year. Funeral service is expected to
generate revenues that are enough for covering the cost of the expenses to be carried out by the
business (Funeral Costs, 2019). There is low competition ion the market therefore it could be
assumed that the projected level of profit will be assumed. This is also advantage for the
company to ground its roots in the field and can build significant market share (van der Laan and
Moerman, 2017). Profits margins have been marked after assessing the market conditions and is
kept low in the initial years.
Cost to Financial
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Sales forecast have been after considering majority of the aspects of budgets & forecasts
that the business will encounter. In this as the business is providing its services there is not
having inventories, intangibles however other business and other administration costs are
covered in the budgets. Further costs related to the business will be encountered and considered
in the accounting statements.
Financial Assumptions
Calculation of incomes and expenses
Estimation of the revenues and cost of operation have been done after the marketing
survey. Adequate enquiry related to the incomes and expenditures of the company have been
made. This is also required to be considered that the income and expenses of the business may
rise as the economic state is dynamic and future financial events are unpredictable.
Revenues from
funeral services
728910 801801 881981.1
Burial revenues 450000 495000 544500
Cremation revenues 200000 220000 242000
Net Revenues 1378910 15168
01
166848
1
Depreciation
Depreciation will be charged as per the guidelines given by ATO department and also the
useful life of the assets has also been decided as per the average age of the assets. There are
various approached for depreciation and Funeral services uses method to depreciate assets under
straight line method of depreciation on the basis opf its useful life. This will enable the company
to devalue its assets to bring down the assessable income of company.
Deprecition Sechdule
Item Amount Paid Year 1 Year 2 Year 3
Motor Vehicle $40,000 $8,000 $8,000 $8,000
Computer $15,000 $3,000 $3,000 $3,000
Printer $10,000 $2,000 $2,000 $2,000
Software $9,000 $1,800 $1,800 $1,800
Total $74,000 $14,800 $14,800 $14,800
Goods & Service Cost
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Any business that is having earning more than $75000 is required to register itself under
GST as per Income Tax Assessment Act,1997. As per the projected statement it could be seen
that the earnings will be higher of threshold limits and also for availing the GST credits business
is required to be registered. Benefits related to GST may not be availed without registration of
business.
Income Tax
Business structure of the entity is of company. As per ITAA,97 company is required to
pay tax at rate of 30%. This is a uniform tax rate levied over all the corporation except small
entities.
Earnings Before
Tax
289153 337252.3 399052.6
Less: Tax @ 30% 86745.9 101175.69 119715.7
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Earnings After Tax 202407.
1
236076.61 279336.8
Cost analysis
Capital expenditures related to the start-up.
Below table gives the expenditures relate to the business. This provides the capita cost related to
the business.
Capital Cost Analysis
Capital
Contribution of Client $20,00,000
Total Capital $20,00,000
Start-up Expenditures
Accountant Fee $30,000
Promotional and advertisement expenses $45,000
Banking Fees $500
Company registration $600
Printer $10,000
Computer $15,000
Support staff $20,000
Maintenance expenses $2,500
General expenses $1,000
Legal expenses $1,500
Salaries $1,80,000
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Utility expenses $2,000
Superannuation $17,100
Total Expenses $3,25,200
Total available funds $16,74,800
All the above cost are estimated after conducting appropriate survey for establishing the
business. In this statement all the costs that are required to be incurred for establishment of the
business are considered. Owner is investing personal capital of $2000000 in the business without
any loans or borrowed funds. It also includes purchase of some fixed assets like computer and
printer and are considered initial expenses (Kinchin and Doran, 2018). Some of the expenses
will be incurred in the first year where some will be required to be incurred every year of the
business. Total expenses in the start up costs are projected as $325,200. The costs may vary as
per change in the legal structure or additional requirements of the statutory authorities
Start Up cost Break down
Start up costs Amounts
Location 5000
License & education 10000
Equipments and
furnishing 40000
Vehicles 80000
Marketing 40000
Location
Location is important for the business. Company is having an established office near the
town. This will prevent the additional cost of the business. An additional ground has been take at
monthly rent of $5000.
License & Education
Funeral director will be required for the business. Employees will be provides with the
education to become funeral director in emergency cases. Cost of licence will range from $200 -
$300 per employee. Education cost of course is around $ 3500.
Equipments & Furnishings
Equipments are requires for carrying the business. Equipments that will be purchased
includes embalming machine that costs around $5000 and stainless steel preparation tables which
costs around $6000 per table. Some additional small tools are also required.
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Vehicles
Lead car will be purchased for carrying out the funeral processions. As the vehicles are
used for the business purpose it could also be leased by the business. Leasing will allow to use
up-dated models in the business.
Marketing Cost
Every business is required to market itself for making the society aware about the
establishment of the business. Marketing will be done over all the local advertising platforms for
getting new business.
Requirement of additional finance
As the owner is investing sufficient funds for establishing the company Funeral services
and there is no requirement of the additional funds. It is having funds in excess of the
expenditures amounting to $16,74,800 as given above in the first year. It is having more that
required funds for the business.
Revenues Forecasts
Forecast for the revenues related to the funeral services has been made according to
current prices floating in the market of different regions.
2017/18
General
revenue Burial Cremation Total revenue
Revenue 728910 450000 200000 1378910
2018/19
Premium
cover Gold cover Silver cover Total revenue
Revenue 801801 495000 220000 1516801
2019/20
Premium
cover Gold cover Silver cover Total revenue
Revenue 881981.1 544500 242000 1668481.1
Fixed and Variable expenses
Fixed expenses
These are the fixed cost that will not be changing with the change in given timeframe.
Variable movement will not be affecting the fixed costs. There has been agreement for the rental
expenses that will not be changing for coming five years.
Variable costs
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Costs changing upon the changes in the volumes or action levels. These expenses require
to be considered as variable costs that will be changing in every period (Rainsford and et.al.,
2019). Variable costs are petrol costs as they are influenced by the international pressures.
Expenses of the company against the budgeted revenues are low over the three years.
Return on Investments
Return on investments refers to the earnings in term of percentage of the initial
investments. Return on investments is required to be assessed for identifying whether the
company will be earning sufficient rate of returns over business or not. If the returns are not
adequate second though to the business is required to be given by the owners (Funeral cost in
Australia, 2019). Company is having initial investments of $2.000,000 brought by the owners.
As per the projections expected earnings after tax of the company are $202,407 which reflects
return over investments to 10.12%. In the year 2 of establishment, company will have increase in
earnings of $236076 that will give the return of 11.80% and coming over to third year it will be
earning profit of $279336 that will provide return of 13.97%. The increase in profits and
expenses have been estimated after considering the inflation rates that causes the increase in
prices and expenses of mot of the expenses. Cost of depreciation will not be changing over the
years as it follows the straight line method of depreciation of its assets.
Capital Contribution Year 1 Profit Year 2 Profit Year 3
Profit
2000000 202407.1 236076.61 279336.8095
% ROI 10.12% 11.80% 13.97%
Payback period
Payback period is the method used by investors and analysts to check the viability and
feasibility of investments. This is used by the experts to identify the period within they will be
recovering their initial cost of investments. If the payback period is shorter than the investments
is not considered profitable where if it is shorter than profitable. There is a capital investment of
$2,000,000 in the business by the owner. Payback period is calculated on certain assumptions,
taking the 10 years as a base for the project and average cash flows of $250,000 are taken for 10
years. Outcomes generated from the payback period assists that the cost of investment will be
recovered by company in 8 years. Payback period is long but as the business is considered to be
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going concern therefore the investment will be recovered by the business. However the cash
flows will differ from the projections taken for measuring payback period. Investments
considering the inflations will be recovered much faster.
Loan
Owners are investing sufficient amount of capital in the business. The funds invested in
the business are enough for carrying out the business operations and activities without any
interruptions. As this is a service sector company will not be required to have production or
inventory cost that acquires sufficient part of the financial plans. Company is not required to
make loans for carrying out its business activities and other operation. Raising loans for running
the business will cause additional finance cost for the company decreasing down the returns.
However if the investments are made by personal borrowing than the loan option would be
beneficial as that will reduce the assessable income as the profits will be lowered as finance cost
are allowed to be claimed as business expense under than income tax laws of Australia (van Ryn
and et.al., 2019). Funeral service are not required to raise any external funding through
borrowing or loans.
Capital raising and start up cost
Funds in the business will be incorporated by the owner that are also called private
investments in the capital. This do not attracts any externals costs. Business will not be raising
any external funds. This is not a company listed on stock exchange therefore funds from public
could not be raised by way of equity capital or debt securities. It will not have costs related to the
external borrowings as the loans or other deposits are not raised from bank or financial
institution. Funds employed by the owners in Funeral services are enough for carrying out the
business operations without interruptions (Hay, 2018). This will also keep the cost of capital to
the minimum as compared within other capital structures that would have been adopted by the
business.
Financial Viability
After carrying out internal as well as extensive primary as well as secondary research on
Funeral services, along with financial information that are relevant to the Funeral Services. It
could be concluded from the research that the there will be sufficient profits to the company from
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carrying out the business. Business could be expanded in further regions by laying the
promotions of business. It is also highlighted as the initial investment is very high for running the
business. Funds could be invested in other return generating sources to generate return over their
investment instead of blocking all the funds in business. After first year, business runs on the
profits generated on it.
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