1 Goldwater Lemonade Operational Report Matt Goldwater September 2014

Operational Report Matt Goldwater September 2014 ... method we expect to stabilize daily profit and increase our net profit. Goldwater Lemonade experienced an extremely positive month

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Goldwater Lemonade

Operational Report

Matt Goldwater

September 2014


Table of Contents

Executive Summary

About Us

Meet the Owner


Operational Report Intro

Weather Forecast

Weather Related Price Point

Profit Melting Away

Accounting Method Flaws

New Accounting Method

Adjustments and Growth

Contact Us














List of Graphs and Tables

Graph - Daily Profit/Loss : Page 7,12

Graph - Potential Customers v.s. Temperature : Page 8

Graph - Cups Sold : Page 8

Table - Temperature Effect on Cups Sold : Page 9

Table - Adjusted Price Point for Temperature : Page 9,14

Graph - Spoilage v.s. Profit : Page 10

Graph - Daily Ice Spoilage : Page 11

Graph - Temperature Spoilage : Page 11

Graph - Total Expenses : Page 12

Graph - Cup Expense : Page 12

Graph - Total Expenses (Linear Line) : Page 13


Profit Driven by Weather

and Inventory Management

With the positive growth in sales and the

knowledge that we can adjust for any

previous dips in sales we determined that the

main reason for our variation in profit was

due to our expenses. Through an analysis of

our expenses we were able to determine two

major things in need of adjustment going

forward. First we noticed that our accounting

method we were using was giving the

appearance of unstable profits but in reality

our profits were more stable than initially

thought. Additionally through the analysis of

expenses we noticed that our spoilage of

inventory was too high severely effecting our

profit throughout the month.

For future


practice, we hope

to take

advantage of the


gained from this

report. As we

come to better


weather patterns

and their affect on our price ceiling, as well

improve our inventory management system

we will reduce any additional costs and

maximize sales. Through these change in

operations and the future change in

accounting method we expect to stabilize

daily profit and increase our net profit.

Goldwater Lemonade

experienced an

extremely positive

month during their

first month of

operations. While

Goldwater Lemonade

nearly had a 900%

return on their initial

investment, there is always room to grow. Upon

further analysis it was discovered that daily profit

had some variation. Identifying the source of this

fluctuation was a primary goal for our

operational report.

In order to get a complete understanding for our

daily profit we decided to break it down and

individually analyze both our sales and

expenses. After further analysis it was

determined that our sales had a general growth

as we adjusted our recipe. The dips in sales

occurred when the customers negatively reacted

towards the changes made to the recipe.

Additionally sales were influenced to some

extent by the weather. We determined that

rather than weather directly correlating with

sales, weather influences our prices and If prices

were adjusted properly, decreases in sales were

minimized. Weather did place a ceiling on our

prices and that’s something we will have to

further explore in future months.

Goldwater Lemonade

Executive Summary



Meet The Owner

Matt Goldwater is a

senior accounting major

at Medaille College .

But don’t let that fool

you, he has real

experience beyond his

schooling. Matt was

involved with the

starting up of

Fernanand Hauling , a

shipping company

which is quickly

growing . Matt is also

the CFO of Commons

Café , a coffee shop on

a local college campus.

Additionally Matt has vast

customer service experience and

knowledge of the business world.

Both of which he is taking advantage of, as

Goldwater Lemonade is quickly off to a great

start. Matt is extremely passionate about

Goldwater Lemonade and is excited for what

the future holds.

Goldwater Lemonade opened its doors

September 1st 2014 but has been in the works

for many years. Serving only the freshest of

ingredients in each glass of lemonade and armed

with a secret recipe passed down through the

family, Goldwater Lemonade has quickly become

a fan favorite. The Stand was founded on a

childhood dream and a secret recipe passed

down through the family of founder/owner Matt


Under the guidance of Matt, Goldwater Lemonade

feels confident in their ability to grow and expand

their reach of lemonade across the region, the

nation, and one day globally. We are looking to

expand our stands and would like to open up

franchise opportunities. Additionally Commons

Cafe a coffee shop in a local college will begin

carrying our lemonade at the start of next

semester. The future is looking very bright for

Goldwater Lemonade with the Stand’s growing

popularity, and expanding business opportunities.

Goldwater Lemonade

About Us



Our lemonade is made with only the freshest

of ingredients. Absolutely no pesticides or

chemicals have touched any of our

ingredients. All of our inventory is carefully

maintained in order to insure that only the

freshest of ingredients are in each glass of


Ever hear of the acronym K.I.S.S? While we’re

not calling anyone stupid, we adhere by the

saying. At Goldwater Lemonade we believe in not

complicating the perfect glass of lemonade. We

don’t add any extra additives or use complicated

formulas. We only use lemons, sugar, water, and

ice. With the perfect combination of ingredients

and our secret method of preparing the

lemonade passed down through the family, each

glass of lemonade is that perfect combination of

bitter sweet.

Goldwater Lemonade




At Goldwater Lemonade we view September’s

Octobers, and November’s Operational

Reports as especially important. We will use

these to help us gauge the market, perfect

our operations, and build our customer base

before closing our doors during our seasonal

break. Ultimately we hope to use this

information to improve our business and help

put together a strong operational and

marketing plan for our Grand Re-Opening in

April. In order to do so we will be analyzing

both internal and external factors. Both of

which are likely to have played a role in our

daily profit variation. Ultimately through this

report we expect to determine the cause of

this variation and be able to make the

necessary changes going forward to not only



variation in

daily profit

but grow

our profits

at a



Goldwater Lemonade exceeded all of our goals for

a first month of operation. September produced

an extraordinary increase in profit of nearly 900%,

getting us off to an extremely fast and successful

start. While it is unlikely to duplicate that type of

increase in profit two months in a row, we are

extremely confident we can still see a substantial

growth in profit. It would be ignorant of us to

believe that everything we are doing is 100%

correct. After all, there is always room for

improvement. As seen with nearly all businesses,

the first month of operations produces an

inconsistent daily profit. This can be expected as

businesses are building a customer base and

trying to tweak their operations and recipes for

success. The main objective of this report is to

determine the causes of fluctuation in daily profit

as well as identify any additional improvements

Goldwater Lemonade should make in future

months of operation.

Goldwater Lemonade

Operational Report




The Effect of Weather on

Goldwater Lemonade

As you can see temperature has a very strong

correlation on the potential customers that

the lemonade stand has every day. While that

will effect the ceiling of how much revenue

with can bring in that day, we noticed that

overall it had very little influence in how many

cups of lemonade we sold.

While there is a slight downward trend seen

in the graph, there are too many outliers that

do not follow the trend to consider weather

as a direct reason for the success or failure

of a day at the lemonade stand. Rather it is

that ceiling that is imposed that influences

the number of potential customers we see

daily. What we see here though, is that a

potential customer does not equate to an

automatic sale. This means that there is an

additional factor that customers are

considering. Through further analysis we

determined this to be price point. Check out

the results of our analysis on price point.

As one might guess a Lemonade Stand is

relatively weather dependent. Ask yourself do

you want a nice cold glass of lemonade on a hot

day or a cold day? Well personally I might choose

a warm cup of coffee on a chilly day. What about

on a sunny day or a rainy day? Some might not

venture out into the rain for a tasty glass of

lemonade, while on a nice sunny day there are a

lot more people out and about. So naturally it

makes sense that our business is effected by


Goldwater Lemonade

Weather Forecast





forward we

will have to


with finding

the perfect

price point

for different

ranges of


and temperatures in order to maximize our

daily revenue. Rather than continuously

change prices each day we will have to

assign one price point for our lemonade.

Then based on the weather we could offer a

special promotional price so that we still

achieve the same price point but it doesnt

look like we are constantly altering our prices

to our customers.

Additionally we will need to determine once

our price point plan is in effect if on certain

days our cost of goods sold exceed our

revenue for a particular temperature. If this is

the case we will recommend that we close on

certain days we

close based on



In order to fully understand the effects of weather

and price point on cups sold and revenue, we

should do an analysis when other factors in our

control are held constant. For purposes of

examining this we chose only days that had the

same recipe. In the table below we see the

difference in cups sold with three days that have

nearly identical price points.

Each of these three days have different

temperatures and based on the table alone it

looks like temperature is the sole driving factor of

the variation in cups sold. However from what we

discovered in Did you Check the Weather

Forecast, we know otherwise. While examining

the weather and price points further we discover

that if prices were properly adjusted the number

of cups sold weren’t effected as much by the

temperature. This is illustrated by the table below.

Goldwater Lemonade

Price Pointing Weather



While it is difficult to see the correlation

because of the flatness of the red line

(spoilage) compared to the light blue line

(profit), if you carefully look at the slight rises

of the red line they nearly identically match

up with the drops in the light blue line. This is

a clear indicator that not only is ice spoilage

effecting our overall profit but it has a lot of

room to improve.

While Goldwater Lemonade had an extremely

good first month, I would be a poor businessmen

if I did not examine potential room for growth.

One of our largest weaknesses this past month

was our poor inventory management. Specifically

we struggled in the management of our ice

inventory. To some that might seem like an

insignificant cost because ice is relatively cheap.

However we noticed that over the first 30 days of

operation we had over $25 in ice spoilage.

Goldwater Lemonade

Profit Melting Away



In the above graph we see how our spoilage

compares to the temperature of the day that

the spoilage occurred on. From this we can

see that we did poor at managing our ice

inventory at nearly every temperature. We

can also see that the bars are more heavily

located to the right of the graph or at the

colder temperatures. At first thought one

might say it is because our stand is effected

by weather. Remember though, that we

determined weather does not play a major

role on our stand (see Did You Check the

Weather Forecast) but rather influences our

ceiling of how many people we can possibly

sell to that day. It is because of this we have

to watch the forecast before purchasing our

ice inventory for the day. If we become more

aware of our external factors we can

minimize the spoilage of our ice. Moving

forward: Purchase inventory smart!

When we take a closer look at our ice spoilage we

see that there is an extreme variance in day to

day spoilage. This provides a lot of insight for me.

First that while we did manage our inventory very

poorly some days and have a ton of spoilage,

there were other days that we had very little

spoilage and some days that we even had no

spoilage. That’s a positive. However no spoilage

could also mean we didn’t purchase enough ice

and sold out too early in the day, so that is

something we should pay closer attention to in

the second month. Additionally if you look at the

linear black line (which shows the pattern of our

data) we can see that our spoilage problem

during the month wasn’t getting better but

instead worse.

Goldwater Lemonade 11

How Do We Fix This


Cash Basis Accounting


In more than one instance there were days

where the company incurred $0 in expenses

for our inventory of lemons, cups, and sugar.

Great right? Everyone loves zero dollars in

expenses! Our profits shoot up that day right?

Well what about the day when we have to buy

a lot of inventory because we are running low

or just want to stock up on cups because of a

really good price? During these days our

profit will and did plummet.

As seen extreme variation in expenses can

lead to extreme variation in profit. Lets be

honest that does not look like a successful

company! Even though we had a near 900%

increase in profit, it looks like we were

inconsistent and inconsistency is not a good

indicator of a successful company. Luckily

that’s not the case for Goldwater Lemonade.

We are very successful so far. However the

cash based accounting method is creating

too many false positives and false negatives

and making it nearly impossible to evaluate

the company’s success accurately.

During the first month of operations Goldwater

Lemonade practiced cash based accounting. An

accounting method which requires businesses to

record income as they receive cash from

customers and record expenses when they pay

cash. There are many disadvantages to using

this method. Among them is the fact that this

method makes it nearly impossible to get an

accurate financial picture of the business.

With the use of this method the way our

expenses are recorded will cause huge variation

in day to day expenses. This becomes even more

obvious when looking at individual expenses.

Goldwater Lemonade

Accounting Method Flaws




1. A better

picture of



2. Tracking



3. Access to Credit

4. Meeting GAAP

5. Allows Financial Managers to Better use

Company Resources

Starting next month Goldwater Lemonade will

begin using the Accrual Basis Accounting Method.

This is a system in which revenue is recorded

when earned and expenses are recorded when

incurred. We expect this to create a more realistic

picture of the type of business we do at Goldwater


We expect the biggest effect to occur on expenses

and day-to-day profit. This is because of how

expenses will be recorded. In the accrual basis

method, expenses are not recorded until the

expense is incurred, meaning that until we use an

inventory item that piece of inventory is not

expensed. We expect this to eliminate the

extreme highs and extreme lows from day-to-day.

Additionally this change will not effect the

appearance of our income. Due to the nature of

our business all of our revenue currently comes in

cash. Therefore the change in accounting method

will not effect our method of recording income.

In the future we should expect to see our

expenses be more similar to the black trend line

(rather than the red line representing this months

expenses) with a steady growth as we begin to

increase our sales of lemonade.

Goldwater Lemonade

New Accounting Method


Benefits of Accrual

Basis Accounting Method


Conclusion We were able to determine that weather

affected both sales and expenses. While

mother nature is completely out of our

control we found through further analysis that

there are some adjustments we can make in

order to be successful in every weather

condition. However it does require us to

monitor the weather. This will be our first

adjustment in operations, we will pay close

attention to the weather forecast as it

influences both sales and expenses.

In our analysis we noticed weather affected

sales as it caused us to sell less cups.

However when we adjusted the price per cup

of lemonade according to temperature by

lowering the price we noticed that while

charging less money we had higher revenue

due to the increase in cups sold.

We are not confident that our numbers this

month can give us an accurate price point for

each temperature due to lack of available

data. However, we are confident that by the

end of the next month of operation we can

have a much better idea on what prices we

should charge when adjusting for weather.

We would like to implement the price

variation through some sort of a discount.

Through an analysis of

operations during the

month of September

we were able to

determine a few key

changes and

adjustments that we

should make in order

to continue to be

successful and

increase our

profitability at

Goldwater Lemonade.

As we stated in our report we determined that

our profitability was affected by recipe (sales),

weather (sales, expenses), and inventory

management (expenses). We started with our

family recipe and adjusted it throughout the

month of September until we arrived at the

recipe which we are extremely confident in.

Goldwater Lemonade

Adjustment And Growth




we will

make a

change in

our accounting method from using the cash

based method to using the accrual based

accounting method. We are confident in this

change as it will help us get a more accurate

picture of our financial performance.

We also discovered that weather influenced our

inventory management. Overall management of

our inventory especially our ice was poor. We

were able to attribute this to the effect of weather

on our sales.

When we

didn’t pay

close enough

attention to

the weather

forecast and

we suffered in

sales we used

less inventory

and we

usually had a large amount of inventory

remaining. Eventually some or most of that

remaining inventory was spoiled and lost, causing

us to purchase more inventory and increase our

expenses. We believe that while we can make an

immediate adjustment here, we will become most

efficient at managing our inventory once we have

determined the price point change due to


Finally as mentioned earlier, our weakest point of

inventory management was our ice. A large

amount of our spoilage and expenses were due to

our lack of management of ice. After performing a

cost analysis we determined that rather than

purchase the ice from

our current vendor, we

will purchase ice cube

trays and freeze our

own ice cubes. We

expect this to

significantly decrease

our expenses and

increase our profit.

Goldwater Lemonade 15


New Flavors of


Hot Drinks


Possible New





Goldwater Lemonade 16

Phone: (716) 55L-EMON

Email: [email protected]

Twitter: @lemonsofgold

Website: mattslemonade.wordpress.com

Have a comment, concern, sug-

gestion, review or even just a

question? Feel free to contact us

at our personal number, email

us, or tweet us. We love to hear

from our guests and look forward

to hearing from all of you. Hours of Operation

(April- November)


7am – 6pm


9am – 4pm