Other information sourced outside of the accounting process may also be of help such as the management of competitors businesses or student feedback. Having gathered all the relevant information, Dana and David must now put aside the idea of closing the business for the moment and first look at ways of improving the schools profitability and solving the problems of the business, while meeting its objectives, using information gathered. Ideas may include a new class selection to bring in new clientele; a different membership/fee structure; a change in premises to modernise the school or a different advertising structure to get the dance schools name ‘out there’.
CHOOSE.
This step is where the business shortlist their ideas and from there a decision is made and plans are implemented as to how the idea is to be executed.
In the short-listing stage, Dana and David must perform cost/benefit analysis on each idea to establish which solution is likely to have the best result. From there they will then look at specific details of each favoured idea, such as if the decision can be achieved and successfully carried out, before a final decision is made.
Dana and David may well decide that none of the ideas presented are drastic enough to turn the business around and that they are set on closing it. But unless they are already in great debt, it is more likely they will decide to try their chosen idea. In this case lets say that they decide that through a feasibility study and through thorough investigation of the idea and how it is to executed; that offering a new selection of dance classes is the most viable option to increase the profitability of River’s Dance School.
Now that the decision has been made, Dana and David must then reflect back on how it is to be carried out and check again for any hidden problems. In the shortlisting stage, Dana and David had found that the best way to redo the class selection at the school is most likely to continue the old classes, as to not lose existing students but to also bring in new teachers who teach new types of dance, such as hip hop. Hidden problems associated with this plan may lie in resources, such as where the new teachers may come from. Dana and David need to investigate this before the decision is executed.
EXECUTE.
The final stages of this decision are to plan, making precise arrangements to carry out the idea. Then they must control the decision, which means following the decision through. And finally to review the decision and its outcome leading to the eventual question, did we solve the problem?
The planning stage for Dana and David will most likely involve interviewing new dance teachers; preparing budgets involving class fees and dance teacher’s wages and finally advertising the new classes on offer. In the controlling stage Dana and David will see if they are successfully meeting their budget; if the advertising is working and if the newly hired teachers, are the right people for the job? Finally Dana and David can now review the outcomes of the decision, preferably after at least a month. The profitability during this period can then be compared to statements from the past three years, sourced once again from the accounting process undertaken in these previous years. This step will identify if the objectives were met and if the problem was solved. If not, maybe the problem itself was incorrectly diagnosed in the clarifying stage of the model.
So how do we get to the ‘reports stage’ of the accounting process and where does all that information used in reports, come from. The first step of the accounting process is where similar to the CACE decision-making model, the business establishes its objectives and plans and operating budgets are then prepared. These operating budgets provide the business with future targets and aid the business when reviewing their performance. The next step is collecting the information, which means as transactions occur within the business, documents are issued and received. These documents include receipts, credit notes and invoices and these items are referred to as source documents, as they act as the source data to verify that these transactions did in fact take place. Eventually all of these documents must then be collected, identified and sorted into categories where we then enter them into their corresponding journal – for example a duplicate receipt will be sorted and entered into the cash receipts journal. From there each of these journals, containing all the relevant information from the source documents of that period are totalled and transferred to the ledger, using the double entry recording system.
This step brings all the summarised information in the journals into separate accounts, from which a trial balance is prepared to check the accuracy of this step and to show all of the businesses accounts and their corresponding balances. Finally from these summarised account balances – financial reports including the statements of financial position and performance are prepared. As mentioned earlier business members when reviewing aspects of their business or in diagnosing, planning or making business decisions then use these reports.
Unfortunately there is a chance that a positive outcome would not have been achieved and in this case, Dana and David may then need to turn to an aspect of the business they hadn’t looked at – the ownership structure and its advantages and disadvantages.
There are a number of advantages of operating as a partnership. Firstly Dana and David would’ve been able to raise larger amounts of capital when establishing the school, as there were two people contributing. Secondly say they are both dance teachers – by forming a partnership, a wider range of skills could be offered, as two brains are always better than one. Also if one was a dance teacher, the other may have had excellent management skills to aid the business in its operation. Thirdly as a partnership, they are able to share both the workload and decision making, which takes a lot of pressure off each individual partner. Finally all business dealings within a partnership are confidential and only government departments need to be informed of business dealings. However a partnership does come with drawbacks. With the decreasing profitability of the school, if they happened to go into debt, they are both personally responsible for covering this debt, by law. Even if it is solely one member’s fault, the others are still responsible if he/she is unable to cover it, called unlimited liability. Secondly disagreements are frequent in partnerships and can result in the business being unworkable. Finally partnerships generally have a limited life – with endings resulting from possible disagreements, as mentioned or from the death of one partner for example.
In conclusion it is essential that Dana and David follow a decision making model before they decide on closing down the Rivers Dance School, to ensure all alternate possibilities have been looked at. However this may not revolve solely around items relating to the business’s profitability, with the success of operating in a partnership structure also a vital point to consider.