Question

1. For this assignment, choose a type of company that you could imagine yourself starting. Describe the type of company.

I could jump-start an independent bookstore in the metropolitan area where I live. The only bookstore around me is 12 miles away at the mall, and I believe a good place to put a bookstore is in the city center with restaurants and other small businesses that sell clothes.

Describe at least two sources you would use for funding your company.
I would consider applying for a small business loan from a local bank and exploring crowdfunding platforms like Kickstarter where individuals who support the idea can contribute funds.

Would you rather fund your company using mostly debt funding, or mostly equity funding? Why?
I would prefer a mix of both debt and equity funding. Debt funding through a small business loan provides capital that needs to be repaid with interest, offering financial stability. Equity funding from investors or crowdfunding allows supporters to share the risks and rewards of the business, providing additional capital without immediate repayment obligations.

Make a list of at least 3 startup costs this company would have.

Renovating the store space to accommodate bookshelves, seating areas, and a checkout counter.
Purchasing initial inventory, including a variety of books across genres.
Marketing and promotional expenses to create awareness about the bookstore's opening.
Will your company use cash-basis or accrual-basis accounting? Explain why.
The company will likely use cash-basis accounting initially. Cash-basis accounting records transactions only when cash is exchanged, making it simpler for small businesses to manage their finances, especially in the early stages. Accrual-basis accounting records transactions when they occur, regardless of when cash is exchanged, and is often used by larger businesses with more complex financial structures.

Will you use single-entry bookkeeping or double-entry bookkeeping? Explain why.
For the simplicity of the business and to manage basic financial records, single-entry bookkeeping would suffice. It involves tracking income and expenses in a single ledger, making it suitable for small businesses with straightforward financial transactions. Double-entry bookkeeping, while more comprehensive, may be overly complex for a small independent bookstore.

List at least 3 risks your company will face, and explain how you will manage those risks.

Market competition: Implement a unique and inviting atmosphere in the bookstore, focusing on personalized customer service and niche book selections to differentiate from larger competitors.
Changing reading habits: Stay updated with book trends, host book-related events, and create a welcoming community space to engage customers and encourage frequent visits.
Economic downturn: Maintain a flexible budget, control operating costs, and establish good relationships with suppliers to negotiate favorable terms even in challenging economic times.

Answer 1

An independent bookstore would benefit from a mix of debt and equity funding, have specific startup costs such as renovations and inventory, and face risks like market competition which can be managed with strategic planning and community engagement.

Step-by-step explanation:

When imagining starting an independent bookstore, two primary funding sources come to mind: a small business loan from a local bank and crowdfunding via platforms like Kickstarter. While both debt funding and equity funding have their advantages, a mix of both would be beneficial. A loan provides initial capital with the obligation of repayment, whereas equity funding offers capital without immediate repayment, spreading the risk amongst investors.

Startup costs for the bookstore would include renovating space for bookshelves and a checkout counter, purchasing an initial inventory of books, and covering marketing and promotional expenses. For accounting, cash-basis accounting is more suitable for the simplicity it offers to small businesses starting out, whereas accrual-basis accounting fits more complex financial structures in larger businesses. Similarly, single-entry bookkeeping is chosen for its straightforward approach to managing basic financial records, appropriate for a small business. On the other hand, double-entry bookkeeping, while more comprehensive, might become necessary as the company grows and transactions become more complex.

The bookstore could face risks such as market competition, changing reading habits, and an economic downturn. Strategies to manage these include creating a unique bookstore atmosphere, staying current with trends, hosting book-related events, maintaining a flexible budget, controlling costs, and establishing robust supplier relations.