Case Study:This needs to be a 12 month sheet, not one. All numbers on here are annual amounts.

Tracking the Money Your career is on track and you’ve been promoted to vice-president of operations of The Company, Incorporated. You are now directly in charge of several managers who oversee various aspects of production and service delivery. You quickly learn that these managers are highly upset about the way the company is making decisions. In a few short weeks, you’ve heard many stories and complaints about how the company makes so much money, yet raises and bonus haven’t been given out in several years. Some suggest that the VP of finance and the owner/president are taking profits, rather than reinvesting in employees or the workplace. You realize that these disengaged, and somewhat angry, employees are not working anywhere near maximum efficiency or capacity, so for the sake of your job and the success of your department you decide to investigate.

You start by talking to your fellow VPs. First, the VP of HR confirms your suspicions, the President and Vice-President of Finance are old college buddies and are often off on their own. There are rumors of lavish vacations, expensive dinners, and 3-4 hour lunches that no other employee is ever invited to join. You also learn that no one ever sees full financial reports, except the President and VP of Finance. VP’s and directors only ever get to see the expense reports for their own team.

You realize that you already have most of the information to develop an estimated set of financial forms. You understand the big picture of business and know that you can’t operate effectively in isolation of other teams. The silo effect ruins efficient operations. First, you look over your own reports given to you by the previous VP of Operations. You see that in operations there are a fairly fixed overhead expenses: Utilities are usually around $2000 per year, Lease expenses are $30,000, Insurance is $4000, and salaries for managers in your department are $325,000. There is a sheet in your report that lists all depreciable equipment and notice that the total annual depreciation for last year was $1500.

You begin to gather information from managers. From the sales team you learn that they bring in revenue in two categories, loosely referred to as primary and secondary. The primary sales revenue is $1,980,000 and secondary sales is $900,000. You learn that the cost of sales (cost of goods sold) is 14% of primary, and 8% of secondary. Overall cost of labor for primary was $165,000 and secondary $31,500. All sales team wages are commission, which are a total of 15% of all sales. Related marketing expenses total $20,000.

Other conversations reveal important information as well. The VP of HR informs you about salaries of $125,000 in the HR department and that they manage a benefits program that totals about $225,000. One of the bookkeepers provides several important facts: at the beginning of last year the cash balance was $425,000 and ended with $295,030 at the end of the year; payroll taxes is $97,805 and while in the bookkeeper’s office, you see the amortization schedule for last year (see below for the details). You decide to talk to the accountant that oversees bookkeeping for last details. The CEO, who is the primary owner (with the most shares), does not earn a salary, but rather takes a small portion of profit, which totaled $66,277. Finance salaries are $200,000, and they pay $201,600 in sales tax.

To address the overall question of where does the money go in this business, you will need to take the above information and construct a statement of profit & loss (Income statement) as well as a statement of cash-flows for the past year. Only then will you be able to understand where the money goes.

- Do you think the owners and unfairly taking all the profits?

- What did you learn about where profit often goes? -

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Principal $27,484 $27,677 $27,870 $28,066 $28,262 $28,460 $28,659 $28,859 $29,062 $29,265 $29,470 $29,676

Interest $21,897 $21,704 $21,511 $21,315 $21,119 $20,921 $20,722 $20,522 $20,319 $20,116 $19,911 $19,705

Mortgage $49,381 $49,381 $49,381 $49,381 $49,381 $49,381 $49,381 $49,381 $49,381 $49,381 $49,381 $49,381

Payment